In 2022, individuals faced new financial challenges as the global economy continued to recover from the pandemic. Inflation and interest rates rose, making credit building an even more crucial tool for achieving financial stability.

Inflation and interest rates were major drivers of the global economy in 2022. Supply chain disruptions and higher commodity prices led to a rise in inflation, resulting in higher prices across many industries. As a result, it was critical for individuals to manage their credit and spending to avoid falling into debt.

Moreover, interest rates increased as a response to inflationary pressures and the overall state of the economy. Higher interest rates made borrowing money more expensive and increased the cost of carrying debt.

What about 2023?

Why credit building is more important than ever

In 2023, credit building is even more important. Here are some reasons why:

• Higher interest rates. Interest rates remain high in 2023. This makes it more expensive to borrow money. Individuals with good credit scores are better positioned to secure loans and credit cards with lower interest rates, saving them money in the long run.
• Inflation. Although trending down, inflation is also still high in 2023 and a key factor that affects the economy and personal finance. When prices are high, it can be challenging to maintain a budget and manage expenses. Individuals with good credit scores are better positioned to access credit when needed and manage their finances in the face of rising prices.
• Economic uncertainty. Although it looks like it is improving, the economy is subject to fluctuations and uncertainty. Since the pandemic it has been particularly unpredictable. Individuals with good credit scores are better positioned to weather financial storms and navigate economic uncertainty with confidence.
• Access to credit. With lenders tightening their lending standards, a credit crunch may already be underway in 2023. This makes access to credit more challenging. Those with good credit scores are more likely to qualify for loans and credit cards, giving them greater flexibility and financial freedom.

How can individuals build and maintain good credit in the face of these challenges? Here are some tips.

• Make payments on-time every time. One of the most critical factors determining your credit score is your payment history. Make sure to pay your bills on time, every time, to demonstrate your creditworthiness.
• Keep balances low. High credit card balances can hurt your credit score and make it challenging to pay off debt. Keep balances low and aim to pay off credit cards in full each month.
• Use credit wisely. Avoid opening too many credit accounts at once and use credit for necessary expenses only. Try to keep your credit utilization rate below 30%. For example, if your credit limit is $1,000, spend under $300 on your credit card.
• Monitor your credit report. Check your credit report regularly to ensure accuracy. Dispute any errors promptly.
• Consider a credit building account. If you are starting to build credit, a credit building account can be a good option.

Credit building has always been an essential aspect of personal finance, but it became even more critical in 2022 due to inflation and rising interest rates. The economic uncertainties of 2023 mean credit building remains an essential component of responsible personal finance management.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Think getting a personal loan requires a lot of effort today? Imagine being an ancient Sumerian. Back then, you needed something more tangible than a good credit report. They preferred silver for big expenses, such as land and houses, according to the book “Mesopotamia: Civilization Begins.” That’s just one of many examples illustrating the strange-but-true history of personal loans. Read on if you need a little encouragement or inspiration that personal finance has improved.

Loans of the distant past

Back to the Sumerians for a moment. Remember how big-ticket items required some high-class coin? Well, rest assured: if you needed to move quickly on a smaller purchase between 4,500 and 2,004 B.C., you had options. Lots of options. You could have used grain such as barley, copper or wool, according to various sources.

In Bible times, God gave Moses and the Israelites specific instructions about lending and the ethics of conducting financial transactions. Personal loans weren’t supposed to be a money-grab for the lender. Exodus 22:25-26 (NKJV) notes:

“If you lend money to any of My people who are poor among you, you shall not be like a moneylender to him; you shall not charge him interest. If you ever take your neighbor’s garment as a pledge, you shall return it to him before the sun goes down.”

Loan retribution in Rome

Not everyone extended grace to borrowers who took out personal loans. The Romans mastered the fine art of pay up or else. A fascinating if grisly summary of the Roman perspective on debt can be found in an article titled “The Loans of Ancient Rome,” by Kenneth S. Most of Florida International University.

It turns out Roman citizens typically didn’t need long-term debt like the modern personal loan. Short-term loans, good for a year or less, covered expenses for a primary occupation: farming. Once farmers harvested the crops, they could pay their loan in full. They didn’t have fancy bathroom projects or giant medical bills at the hospital, evidently.

It’s also likely that Roman punishments for nonpayment played a role. Today, bankruptcy and collections await borrowers who default on a loan. Back then, failing to pay a debt triggered a harrowing series of events.

First, the borrower went to debtor’s prison. Heavy chains limited their freedom to move. They could either find a way to pay the money or try to find some poor sap to serve the conviction for them. The Romans even subjected debtors to public humiliation. Borrowers had to stand in the square and say the amount of their debt out loud. Empathetic family or friends might hear the plea and cough up the cash.

Second, borrowers whose cries went unheard and whose pockets remained empty faced grim fate. They could be sold into slavery. They could be executed. And if they had multiple loans to settle, their corpse could be split into pieces.

Guilty consciences in the Middle Ages

It seems that morality didn’t make much of a comeback for personal loans from the 1100s to the 1300s, according to an article available from The Ohio State University’s history department.

People who made loans–known as usurers–occupied among the lowest positions in society. Church leaders condemned them for extracting money from borrowers without working for those earnings.

“The usurer found himself, in time, linked to the worst ‘evildoers’, the worst occupations, the worst sins, and the worst vices; for he was an evildoer of the highest degree, a pillager and robber,” the article notes.

Lenders who died clinging to their occupation faced the prospect of hellfire, according to a belief common at the time. More people in the early 1200s embraced the concept of purgatory, a place where people are said to get a second chance to make amends and get to heaven. Yet some still didn’t think these interest-grubbing professionals would make the cut. The bodies of people who made personal loans often found themselves buried in cemeteries apart from the general public.

The 1700s and 1800s: ‘Please, may I have a loan, sir?’

As humanity advanced its financial system, the personal loan managed to find itself embroiled in further weirdness.

In the 1700s, people had to get character witnesses to take out a bank loan, historian Sean Trainor notes in a report for TIME. (This was for shopkeepers, mind you. But the odd mental picture deserves inclusion here. Bizarre business loans left people seeking personal loans with the financial dregs. We’ll explain in a moment.)

Even into the early 1830s, banks focused on lending to businesses, not your average person on the street, according to an article by Amy Farber, a research librarian at the Federal Reserve Bank of New York. And lest you think businesses got the royal treatment, be assured they had strict rules you likely wouldn’t want to follow. Loans tended to be doled out and paid back in a span of three months. You didn’t get the full loan amount. The bank took its interest, then handed you the rest, printed on its own special paper. Good luck cashing that at the ATM!

Meanwhile, people seeking personal loans found their neighborhood banks’ doors sealed shut.

So they turned to the next best thing: Rich people.

Quoting from the records of a Massachusetts museum that studied early banking trends, Farber shares: “People in the 1830s who wanted a personal loan or a mortgage usually went to wealthy individuals with money to lend (such as Salem Towne, the prosperous farmer and businessman who owned the large white house on our common) … .”

The next time you consider a personal loan, just imagine the alternative: going door to door in your community, knocking on the doors of nice homes and hoping someone shows you mercy.

Nah, we’re good.

Post-World War II and the rise of crypto lending

Personal loans took on fresh adventures in the 20th century and continue into the present.

One unusual type of personal loan happened in 1947. Well, it actually involved a lot of people. Specifically, the entire country of France.

World War II left extensive damage throughout the European nation, so the World Bank agreed to extend its first-ever loan. Back then, the people of the country got $250 million for rebuilding, an article on the bank’s website notes. In today’s terms, that’s the equivalent of $2.6 billion. The bank hasn’t made such a large loan since.

Fast forward to today, and cryptocurrency continues to grow in popularity. Digital money has several things going for it, including the ability to trace every penny’s provenance from its point of origin.

But there’s more: Crypto lending is on the rise, according to a Reuters report. Fans say crypto lending benefits borrowers because it’s faster to secure a loan. Plus: fewer piles of paperwork! Companies making crypto loans include BlockFi, Celsius, Genesis and Nexo. Be aware, though, that regulation of crypto industry hasn’t caught up to the fast-changing financial environment. Crypto holdings can disappear with market shifts or if lenders leave the crypto economy for good.

Some things never change. Whether you’re seeking a personal loan at the dawn of history or in cyberspace, borrower discretion is advised.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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Individuals with exceptional credit scores enjoy some important advantages. Typically, approval for credit is easier, they get lower interest rates from a wider selection of lenders and better rewards.

A recent Credit Sesame survey identified five habits of people with top credit scores that set them apart from how most consumers use credit. For the purpose of analysis, survey respondents were grouped by credit score:

• 800 or higher. People with super exceptional credit scores.
• 799 or lower. People with credit scores from poor to excellent.

How respondents answered five key questions reveals much about what it takes to earn an outstanding credit score. Generally, a VantageScore above 750 is considered excellent. For the Credit Sesame analysis, we assessed the habits of the very highest scorers 800 or above.

1. How do you usually pay for daily living expenses?

Frequent credit use helps build credit scores.

52% of the group with outstanding scores said they used a credit card. In contrast, just 17% of all other respondents said a credit card was their primary payment method. Among people with credit scores below 800, 74% said a debit card was their preferred means of payment.

Other methods of payment such as cash, prepaid cards and secured credit cards were used by both groups under 10% of the time.

Using a debit card draws on the money you already have in an account, so you are unlikely to go into debt. However, you need to use credit regularly to develop an excellent credit score. Payment history is the number one factor in determining a credit score.

The key to getting the most out of a credit card is to use it frequently without running up a debt balance over time. If you pay your balance off monthly, you can use a credit card without paying interest. This can be better than using a debit card because the money stays in your bank account a little longer, hopefully earning interest. Plus, it builds a robust history of using credit and making payments.

2. How much of the total balance on all your credit cards do you pay off each month?

People with great credit pay their balances off every month.

The survey found that 77% of respondents with credit scores of 800 or better pay their balances off in full every month. In contrast, 24% of the remaining respondents paid their balances off in full.

Strikingly, none of the respondents with outstanding credit said they paid only the minimum payment. 9% of those with scores below 800 said they usually made only the minimum payment.

Making only minimum payments extends your repayment out over a longer period. This means you pay more interest. You may also accumulate larger credit balances, hurting your credit score.

8% of respondents with great credit scores paid off under 25% of their credit balance monthly compared to 51% of respondents with credit scores below 800. As a result, people with lower credit scores end up paying more interest. They are also likely to be using more of their credit limit from month to month.

3. What proportion of your total credit card(s) limit do you use monthly?

Keeping a low credit card balance helps your credit score

Credit utilization ratio is a factor in determining credit scores. It is the amount of credit you use compared to your credit limit. For example, if you have a $1,000 credit limit and a $500 balance, you have a credit utilization ratio of 50%.

A low credit utilization ratio is good for your credit score. 80% of people with credit scores of 800 or better have card balances under 10% of their credit limits. In contrast, just 46% of the remaining respondents keep their balances so low.

People with high credit pay less interest and have low credit utilization ratios, which help their credit scores.

4. What are the main things you save for?

Preparing for emergencies helps keep credit in shape

Often, it is unexpected expenses that get people into credit trouble. A loss of income or sudden expense causes people to rely more on credit to make ends meet. Their credit usage rises and they may have trouble making payments. This drives their credit score down.

One thing distinguishing people with better than average credit is they try to prepare for emergencies. 74% of survey respondents with scores of 800 or higher had emergency savings on hand compared to 54% of the lower-scoring respondents.

5. What made you decide to apply for your last card?

Great credit users do their research.

Credit card ads are one of the most common types of advertising popping up on computer screens, televisions and into mailboxes. The question is, do they convince you to apply for a credit card?

Survey respondents with credit scores below 800 typically said they responded to advertising. 56% said they responded to a pre-approved or pre-qualified offer they received. A further 12% said they saw an ad and acted on impulse. In total, 68% of people with credit scores below 80% chose their credit cards in response to some marketing promotion.

In contrast, 60% of respondents with credit scores of 800 or better researched to find the right card compared to 32% of respondents with scores under 800. This suggests people with excellent credit are almost twice as likely to consider cards carefully before applying.

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Survey methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post 5 things people with great credit do differently appeared first on Credit Sesame.

Most Americans take having a bank account for granted. It’s not unusual to have multiple bank accounts. A bank account keeps money safe and easily accessible. It also can be a gateway to a variety of other financial services. 

Credit Sesame asked over 1,500 adults about their banking habits, and 98%of respondents had at least one bank account. The 2% exception represents millions of adult Americans more likely to be lower-income consumers. This number tallies with figures from the Federal Deposit Insurance Corporation (FDIC), which reports that in 2021, 4.5% of U.S. households were unbanked.

What does it mean to be unbanked?

The term “unbanked” is used to describe adults who do not have a bank account. Poverty itself is not a barrier to having a bank account and most low-income Americans have bank accounts. So why do some people remain unbanked?

Credit Sesame grouped respondents into three income tiers:

• $50,000 or less
• $50,000 to $100,000
• $100,000 or more

The chart shows the percentage of each income group that is unbanked.

The lowest income group members are fifteen times as likely to be unbanked as the highest income earners.

Why do people choose to be unbanked?

Historically, poorer neighborhoods had fewer bank branches. However, online banking has broken down that geographic barrier. It’s worth noting that the survey was conducted online. Anyone with access to the survey should also have access to a bank. And yet, some respondents remain unbanked. Reasons given for remaining unbanked include:

• Cannot meet minimum balance requirements. But there are many banks with no minimum balance requirement. 
• Do not trust banks. But bank deposits of up to $250,000 are protected by federal insurance.
• Prefer to keep money in cash. But cash is vulnerable to theft or loss. It is bulky and inconvenient and no longer acceptable in many retail outlets.
• Spouse or partner has a bank account. But this means you have to rely on the goodwill and time of your partner if you need a bank account.

Disadvantages of being unbanked

Not having access to traditional banking services (including online banking) can have several disadvantages:

• Limited access to credit. Without a bank account, it can be difficult to obtain credit or loans from traditional financial institutions. This can make it challenging to make large purchases or invest in a business.
• Higher transaction fees. Unbanked individuals often have to rely on check-cashing services, money orders, or prepaid debit cards to manage their finances, which can come with high fees and charges.
• Limited financial services. Banks and credit unions offer a range of financial services, including savings and checking accounts, retirement accounts, and investment products. Without access to these services, unbanked individuals may miss out on opportunities to grow their wealth.
• Increased risk of theft. Keeping cash on hand can make individuals more vulnerable to theft and fraud, as there are fewer protections in place to safeguard their money.
• Difficulty paying bills. Without a bank account, paying bills can be more difficult and time-consuming. Unbanked individuals may have to rely on money orders or pay in person, which can be inconvenient and may incur additional fees.

Saving without a bank account

Nearly twice as many lower-income respondents with bank accounts have savings compared to unbanked respondents.

And banked respondents in the lower-income bracket had on average ten times more funds saved than unbanked respondents.

What is being done to decrease the unbanked population?

The unbanked in the US include individuals from low-income households, minority communities, rural areas, immigrants , young adults and unemployed or underemployed individuals. In the 21st century, unbanked individuals are considered to be at a disadvantage for the reasons given. Several initiatives aim to increase access to banking in the United States.

• Bank On. Bank On is a national program that promotes access to safe and affordable bank accounts. Participating banks and credit unions offer low-cost accounts with no overdraft fees, making them more accessible to low-income individuals.
• Community Reinvestment Act (CRA). The CRA encourages banks to invest in their local communities by providing credit and financial services to underserved areas. Banks are evaluated on their performance in meeting the credit needs of low- and moderate-income neighborhoods.
• Mobile banking. Many banks now offer mobile banking apps that allow customers to manage their accounts using their smartphones. This can make banking more accessible to people who may have difficulty accessing physical bank branches.
• Financial education. Financial education programs can help individuals understand the benefits of banking and how to manage their finances. These programs may be offered by banks, non-profit organizations, or government agencies.
• Partnerships between banks and non-profits. Some banks have formed partnerships with non-profit organizations to provide banking services to underserved communities. These partnerships may involve financial education programs, credit counseling, or assistance with opening bank accounts.

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Survey methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Who is unbanked in the USA? appeared first on Credit Sesame.

When you open your wallet to pay for something, what do you reach for?

A recent Credit Sesame survey asked over 1,500 American adults what method of payment they are most likely to use for day-to-day expenses. Based on their responses, Credit Sesame looked at the average age, income and credit score for people with each type of payment preference.

The results reveal some distinct characteristics of people who use different types of payments. Your choice, though, should be guided by the pros and cons of each payment method rather than which user characteristics are closest to your own.

Ranking payment preferences

Credit Sesame asked people “how do you usually pay for daily living expenses?”

The top three responses were as follows:

• 68.2% debit card/checking account
• 23.9% credit card
• 5.4% cash
• 2.5% other

Other includes prepaid cards, secured credit cards, Cash App and cashiers check. Interestingly, respondents tended to be in an older demographic (50+ years) and differences in credit score were discernible between debit/checking account users, credit card users and cash users.

Debit card/checking account users

A checking account is a traditional means of managing payments. Accessing money in the account with a debit card or via electronic transfers has mostly replaced writing physical checks.

Though the name “checking account” may be growing somewhat dated, this type of account remains popular. Over two thirds (68.2%) of respondents to the Credit Sesame survey said that using a checking account was their preferred way of paying for day-to-day expenses.

Characteristics of debit card/checking account users

On average, survey respondents who use a debt card/checking account as their preferred method of payment have the following characteristics:

• 53.58 years average age. This makes them very similar to the overall survey average age of 53.83.
• $71,805.64 average annual income. This is a little below the overall survey average of $79,159.14.
• 685 average credit score. That’s pretty good, but it’s a little below the overall survey average of 702

In short, debit card/checking account users are generally of average age, with incomes and credit scores that are a little below average.

Pros and cons of debit card/checking account use

Whether you still write checks, use electronic transfers or a debit card, using a checking account is a sound way of making payments.

Money held in a checking account is usually protected by federal deposit insurance. It may even earn interest, or can be easily linked to an interest-bearing account.

Making payments out of a checking account means using money you already have. That way you don’t run the risk of incurring interest charges by borrowing money.

On the downside, debit cards don’t offer quite as strong fraud protections as credit cards. Writing checks may be even more risky, because you’re sharing your bank account number with anyone you pay by check.

Another disadvantage of debit cards is that using them does not help you build a credit history.

Credit card users

Credit cards came in second to debit cards in this survey. They were the primary payment choice of 23.92% of respondents.

Credit cards are very popular with consumers and Americans now have over a trillion dollars in credit card debt outstanding, an all-time high.

That heavy debt load is a reminder that there is a right way and a wrong way of using credit cards. As a short-term cash substitute, they are useful. As a form of long-term borrowing though, they are expensive and inefficient.

Characteristics of credit card users

Credit card users in this survey are:

• 55.11 years average age. That makes them older as a group than the overall survey average and older on average than the users of any other form of payment.
• $106,445.80 average annual income. This is much higher than the overall survey average of $79,159.14.
• 759 average credit score. The responders in this group using credit cards as their primary form of payment have excellent credit. Their average score of 759 is significantly higher than the overall survey average of 702.

In this survey, people who use credit cards primarily are older, more affluent and have better credit than those who choose debit cards or cash.

Pros and cons of credit card use

A great thing about credit cards is their efficiency. Instead of carrying cash around or depleting your checking account, you put purchases on your credit card and then pay them off once a month.

If you pay your balance off in full every month, you can avoid interest charges. If your card has no annual fee, that means you can use a credit card for free.

On top of that, some credit cards offer rewards which can reduce the net cost of things you buy. Credit cards also have strong protections against fraud.

Using credit cards can help you build your credit history. This works to your advantage if you use the card regularly but make all your payments on time and keep your balance to a minimum.

The downside of credit cards is that many people do not pay their balances off from month to month. This means incurring interest charges. Credit card annual interest rates are very expensive. The average in early 2023 is above 20%. For people with poor credit scores, it can be much higher.

Cash users

Only 5.40% of survey respondents said they use cash as their primary method of payment.

Characteristics of cash users

As a group, people who still use cash for most things have the following characteristics:

• 51.45 years average age. These respondents are generally younger than the overall survey average and younger than debit and credit users.
• $54,923.43 average annual income. This is well below the overall survey average.
• 661 average credit score. This is significantly below the survey average of 702.

These characteristics may highlight that it can be tough for younger and lower earners to establish credit. There may also be a chicken-and-egg aspect situation. People who do not use credit regularly do not build their credit scores.

Pros and cons of using cash

The nice thing about cash is that it doesn’t cost you anything to use – not directly, anyway.

Also, anyone can use it. You don’t need to open an account anywhere to use cash.

On the downside, cash can be risky because it’s subject to theft or loss. It can also be inconvenient. It can be hard to get your hands on cash unless you have a bank account and an ATM card.

Keeping cash outside a bank means you do not earn any interest. Also, using cash does not build a credit history.

Do you have to choose credit vs debit?

The good news is that these payment methods are not all-or-nothing choices. You can use debit, credit and cash from time to time. Thinking about the pros and cons of each can help you choose the right method for different situations.

Survey methodology

The Credit Sesame Credit Health and Financial Fitness Survey December 2022 was designed and executed by Credit Sesame using the WebEngage survey tool. The survey sample comprised over 1,500 Credit Sesame members with a credit score distribution resembling the U.S. general population. In aggregate the sample data is accurate with a 2.5% margin of error using a 95% confidence level.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Credit vs debit: What does your payment method say about you? appeared first on Credit Sesame.

At the beginning of 2022, you may have wished you were Sam Bankman-Fried. By the end of the year, not so much.

Sam Bankman-Fried is the founder and former CEO of the failed cryptocurrency exchange FTX. His fall from grace was spectacular. He went from being worth tens of billions to living with his parents. From innovative whiz kid to punch line. From entrepreneurial role model to disgraced thief.

As unique as that journey was, SBF’s downfall has financial lessons for everyone.

1. Don’t put all your eggs in one basket

SBF’s loss of his personal fortune is a spectacular demonstration of the importance of diversification.

At one time, SBF’s main business venture, the cryptocurrency exchange FTX, was valued at over $32 billion. On paper, that meant SBF should have been more than set for life. His family should have been financially secure for generations to come.

There was just one problem. Virtually all of that wealth was tied up in one venture. Even sound investment ideas can go wrong, but this venture was built on a shaky foundation.

There’s no magic number as to how many stocks you should have, but you should avoid situations where the failure of any single company would significantly damage your wealth. Look at the diversification of investment themes. If too many of your investments rely on one industry or trend, a lot can go wrong all. The business of FTX was reliant on the popularity of cryptocurrencies. When the value of cryptocurrencies plunged in early 2022, the whole house of cards started to tumble.

2. Liquidity is the key to sustainable wealth

Net worth is important, but it’s no substitute for liquidity. You need access to enough cash to pay your bills. Having too much money tied up in long-term investments can hamper that.

Both the downfall of FTX and early-2023 bank failures are examples of this. What they have in common is that institutions had tied up too much money that could not be accessed at full value when needed.

When people who had deposited money in the FTX crypto exchange or Silicon Valley Bank or Signature Bank wanted their money back, it simply wasn’t available. That caused a panic, leading to more depositors wanting their money, leading to an even bigger problem.

For an ordinary investor, this a reminder not to tie up so much wealth that you can’t pay your bills. Investing in a retirement account or buying a house are good ways to build wealth. However, if you commit too much of your income to a mortgage or a 401(k) plan, you might be unable to make ends meet. Then you may face a choice between bankruptcy or taking a loss to cash in investments.

3. Investing and speculating are not the same thing

It turns out that FTX managed to secure hundreds of millions in investments from organizations that didn’t bother to do a detailed inspection of its business model or bookkeeping.

This type of behavior is surprisingly common when it comes to cutting-edge and trendy spheres like cryptocurrency. People may not fully understand it, but they want in. All they care to know is that it’s hot, it’s making money, and they don’t want to be left behind.

Some professional investors were guilty of making huge bets on FTX, so it’s no surprise that retail investors may also rush headlong into an investment craze. Remember, if you don’t understand how a company makes money and haven’t looked at the financials in detail, you aren’t investing. You’re speculating.

4. Good bookkeeping pays off

Tech start-ups like to make a virtue out of moving too fast to sweat the details. When it comes to running a multi-billion dollar venture, it turns out details like good bookkeeping are important.

After FTX fell apart, one thing that increased the difficulty of sorting through the wreckage was that the company lacked normal accounting procedures. At one point, SBF said he had “misaccounted” for $8 billion in customer funds.

You can probably comfort yourself knowing you can never lose track of $8 billion. Still, careful bookkeeping is also crucial at the household finance level. Balance your checkbook, and review every transaction on your bank and brokerage statements. Sooner or later, you need to know where your money is.

5. Face the truth sooner rather than later

When FTX ran into financial trouble SBF made public statements claiming there were no real problems while hoping to raise enough new money to cover client losses.

Ordinary people also have trouble facing up to their financial troubles. But that makes things worse. Facing up to a bad investment or a debt problem is an opportunity to take positive action. This can be the first step to regaining control of your finances.

It’s also important to be honest with the people around you. Could you let your family know what financial difficulties you’re having? It may be easier to fix a problem if you don’t have to keep it secret.

6. Beware of pyramid schemes

Though it was wrapped up in the shiny new packaging of a cryptocurrency exchange, it is alleged that FTX had elements of a classic pyramid scheme.

Pyramid schemes date back a century, yet people still fall from them. They are also known as Ponzi schemes, after a businessman famous for defrauding investors in the 1920s.

A true pyramid scheme is an illegal investment scheme that relies on recruiting more and more members to generate profits rather than legitimate business activities or products. Here’s how it works:

1. A person at the top of the pyramid creates a new investment opportunity, promising high returns for investors.
2. The person recruits a small group of initial investors, who are asked to make a payment to join the scheme.
3. Each of these initial investors is then encouraged to recruit more people to join the scheme, usually by promising a percentage of their profits in return.
4. As the pyramid grows, each level becomes larger and larger, with more and more investors joining and paying money to the people above them in the pyramid.
5. Eventually, the pyramid becomes unsustainable, as there are not enough new investors to support the payouts promised to earlier investors.
6. At this point, the people at the top of the pyramid have already made a large amount of money, while the vast majority of people at the bottom have lost their entire investment.

It is claimed that SBF funneled client deposits in FTX to a hedge fund he owned, Alameda Research. He used some of that money on himself. Alameda, in turn, invested heavily in an FTX cryptocurrency token, which for a time helped prop up the value of that token.

When cryptocurrencies cooled off, money stopped flowing in and the value of Alameda’s investments suffered.

The failure of this type of scheme was true in Charles Ponzi’s time and true of Enronand Bernie Madoff. FTX may have been the latest twist on the scheme, but be on guard, it surely won’t be the last.

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When businesses opened up after the pandemic shutdowns, employers went on a hiring binge. More recently, we may have started to see the hangover from that binge. In 2023 unemployment remains low overall, but there are trouble spots resulting in a steady stream of high-profile layoff announcements.

Huge differences in job markets

In early 2023, the national unemployment rate dipped down to 3.4%. That’s the lowest since 1969. Low unemployment generally means it is easy for workers to find jobs. However, the job market differs from one state to another.

Unemployment rates range from a low of 2.1% in North Dakota to 5.5% in Nevada. The number of New York job openings matches the number of job seekers. Whereas, South Dakota has more than three openings for every job seeker.

If you have no luck finding a good job in your local area, consider expanding your horizons. To help you decide where to go, Credit Sesame figured out which states are the best and worst states for job seekers in 2023.

What is a good market for job seekers?

There are several data points to consider when determining the quality of the job market for job seekers.

• Unemployment rate
• Rate of new job creation
• Number of job seekers

Independently, these may be good indicators of job prospects, but considering them together gives a fuller picture. These data were used to calculate:

• The ratio of job openings to job seekers in each state. That shows the employment demand in each state relative to the available labor pool.
• The percentage change in job openings over the most recent 12 months.

These numbers were then ranked from best to worst state (1 to 51). The average of the two ranking numbers for each state gives a score that ranks the best and worst states for job seekers based on the current level of demand and the recent changes in demand.

10 best and worst states for job seekers

10 best states

The overall state ranking takes into account the number of job openings per job seeker and the recent trend in job openings. It may seem that the state with the most job openings per job seeker should rank #1, but growth in job openings is also important. Here are the top ten states for job openings, growth in job openings and overall.

1. Georgia

There are 2.7 job openings in Georgia for every person seeking work. That’s the sixth-highest ratio in the nation. Georgia also ranked sixth for growth in job openings over the past twelve months, with a 10.66% increase. Being strong in both areas earned Georgia the top ranking overall.

2. Alabama

With 2.77 openings per job-seeker, Alabama’s ratio was slightly better than Georgia’s. However, their growth in job openings over the past twelve months ranked tenth, at 7.28%.

3. Louisiana

The trend here is especially strong, with a 24.48% increase in the number of job openings over the past twelve months. That ranked second nationally. Louisiana’s ratio of 2.41 openings per job seeker ranked 14th.

4. South Dakota

This state has the best ratio of openings per job seeker, at 3.68. The only caution is that this hot job market may be poised to cool off a bit, as there was no growth in job openings over the past year.

5. Oklahoma

This was the fourth-best state in the growth of job openings, at 16.81%. The ratio of openings to job seekers is 2.36, which ranked a solid 15th.

6. Arkansas

Job openings in Arkansas increased by 17.39%, which ranked third nationally. The ratio of openings to job seekers was an 18th-ranked 2.32.

7. West Virginia

This was the number one state for growth in job openings, at 24.56%. If it can keep up that pace, West Virginia should improve its ratio of openings to job seekers, which ranked 21st at 2.30.

8. Vermont

The only northern state in the top ten, Vermont was 12th in ratio of openings to job seekers at 2.47, and 11th in growth rate of openings at 4.17%.

9. District of Columbia

The Capital District ranked 9th with a 2.6 ratio of openings to job seekers. The number of job openings was flat over the past year, but at least that’s better than the 34 states that saw a decline in openings.

10. Florida

The ratio of openings to job seekers is a 13th-ranked 2.47%. The number of openings grew just slightly, with a 0.28% increase that ranked 14th.

10 worst states

And here are the bottom ten states for job openings per job seeker, growth in job openings and overall.

42. Iowa.

Though Iowa’s 2.03 ratio of openings to job seekers was only a little below the median, its 15.45% decline in job openings is troubling.

43. Pennsylvania

The ratio of openings to job seekers ranked 40th at 1.65, and the number of openings declined by 8.1%.

44. Maine

The 2.13 ratio of openings to job seekers was around the middle of the pack, but Maine had the third biggest decline in openings at 22.22%.

45. Oregon.

This state ranked 47th with a 1.33 ratio of openings per job seeker, and the number of openings declined by 7.28%.

46. Indiana

This state had a 19.84% decline in the number of job openings – fourth worst nationally. That didn’t help its 1.94 ratio of openings per job seeker, which ranked 32nd.

47. Hawaii

The 1.66 ratio of job openings per job seeker ranked 39th, and the number of openings declined by 14.58%.

48. California

With just 1.3 job openings per job seeker, California ranked 49th. An 8.01% drop in the number of openings only makes things worse.

49. Connecticut
This state’s 1.29 ratio of openings per job seeker is better only than neighboring New York’s. With a 10.19% decrease in the number of openings over the past twelve months, that ratio doesn’t look likely to improve.

50. Michigan
The 1.39 ratio of openings to job seekers ranked 45th, and the 18.49% decline in the number of job openings was the fifth worst.

51. New York

This state has the worst ratio of openings per job seeker, at 1.12. That doesn’t look likely to get any better, because the number of openings declined by 23.52%, the second-worst rate of decrease in the nation.

Thinking of moving state?

You can improve your job prospects by moving state. However, before you pack your bags and relocate to a state with a stronger job market, consider the following:

• Skills match-up. What kind of workers are in demand in the state? If your skill set does not match those in demand, relocating may not be a wise move.
• Cost of living. This varies considerably from state to state. Beware of getting a 10% pay raise in a state with a 25% higher cost of living.
• Personal preferences. Work is important, but so are things like climate, cultural offerings, politics, and closeness to family. Deciding to move based solely on career prospects may not get the happy result you hope for.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

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I stared at my screen in disbelief. Why was I declined for a pre-approved loan? Everything seemed to be in my favor:

• Three pre-approved offers
• FICO scores that consistently hovered around 800
• ZERO debt and an 8% credit utilization ratio
• A healthy income, more than enough to qualify

And yet, there was the dreaded popup: “So sorry, we can’t approve you for a loan at this time. You can apply again in 90 days.”

What could possibly have happened? In the interest of full disclosure, I didn’t plan to apply for a personal loan and did not need one. I was writing a lender review for a financial publisher and needed to include information about the application process. So, I was working through the prequalification process, which wasn’t supposed to generate a hard credit inquiry. When three “pre-approved” offers popped up, I clicked on one to see what its fees were. And bang! Immediate popup declining my loan application. Followed shortly by an “adverse action” email. Eek.

As I didn’t want a loan, being declined didn’t really matter. But it stung — no one likes rejection even by a bot. And I was mystified: how could someone as highly qualified as I was be declined for a pre-approved loan?

What I did right to increase my credit score 100 points

In the last 12 months, I increased my credit score by over 100 points by applying carefully for credit and then not using it much. I put one automatic charge, like a streaming service, on each card. And I set them all up with automatic monthly payments, so I created a lot of positive credit history very quickly.

In addition, I collected a ton of airline miles in the process and drove my credit utilization ratio down to almost nothing. Since credit utilization is 30% of a credit score, it helped me make spectacular credit score leaps very quickly. I fully expected to qualify for any loan I wanted (or didn’t want).

Why I was declined for a pre-approved loan

My fatal credit mistake was easy to make. The one credit card that I use for air miles only has a $5,000 limit and I charge my rent and everything I buy on that card. Of course, I pay it off each month. But when I accidentally applied for my personal loan, that card was maxed out. And even if my total credit utilization was under 8%, the utilization on that card was close to 100%. And that, combined with the fact that I had six credit cards (“too many revolving accounts”) was enough to derail my application. Ugh.

How many credit cards is too many?

Then, there is the other reason my loan was declined — too many revolving accounts. But how many revolving accounts is too many? Turns out that the number of accounts probably wasn’t the main issue. The speed with which I opened them was. In my quest to have lots of unused available credit, which did great things for my credit scores, I accidentally created a red flag parade for future lenders.

Opening up a slew of new credit cards over a short period drops the average age of accounts, impacting 10% of your credit score. It also generates “hard” credit inquiries, which show up on your credit report. Having a ton of available credit, especially new credit, can scare lenders.

Mortgage underwriting and new credit cards

According to Freddie Mac’s Selling Guide, underwriters should view the opening of several new accounts with concern.

“…several recently opened accounts may be a warning that the Borrower could become overextended and require a more conservative approach to reviewing both Borrower credit reputation and capacity. A credit history with all recently opened accounts may indicate that the Borrower lacks sufficient experience managing financial obligations.

The [lender] should also review the age of accounts to determine if there has been a significant change in the Borrower’s credit profile. A change in the Borrower’s pattern of credit use, which includes several newly opened revolving accounts, several inquiries and high utilization of revolving Tradelines, introduces significant layering of risk to the Borrower’s credit reputation.”

How to use rewards cards without penalty

While I don’t plan to apply for any loans in the near future, I have taken steps to protect my credit while still maximizing my mileage rewards. It’s simple. I check my card activity and balance online every Monday. And I pay it in full from my checking account. Every single week. If I use it for an especially expensive purchase, like plane tickets or an appliance, I log in immediately and pay the balance. My credit score is up another 20 points.

Another way to guard against the overutilization of one card is to spread out purchases. If you’re chasing rewards, you could use one card that provides the most cash back on gas and groceries for those purchases and another one for travel, etc. Experts recommend keeping utilization on any single card under 30% to avoid ugly surprises when you apply for credit in the future.

The balancing act

Do I regret opening up several new credit cards in one shot? Not really. The end result has been a greatly-improved credit score. But had I been applying for a loan in earnest, my errors could have proven costly. It’s smart to consider all possible credit effects before applying for new credit, closing an account or increasing your balance.

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Not paying bills on time and owing money to creditors usually lowers credit scores. If you fail to pay your income taxes on time your credit score is not affected. At least not directly.

The Internal Revenue Service does not report tax debts directly to consumer credit bureaus, so credit scores won’t fall. Credit card companies, mortgage lenders and other creditors report debts, but not the IRS. 

Federal tax liens could hurt 

If you owe the IRS a lot of money, it could file a Notice of Federal Tax Lien in court. A tax lien gives the federal government a legal claim to every asset you own, such as your car, home or other property. The lien gives the IRS first priority over other creditors in collecting on the lien.

You probably get to keep your property, but a lien makes it difficult to sell. Ultimately, however, the IRS could force a sale of your assets to collect any unpaid taxes, penalties and interest you owe.

The credit bureaus stopped reporting tax liens in April 2018, so liens cannot lower credit scores. A lien by the IRS does not appear on your credit reports.

But lenders can still discover tax liens through public records searches when considering your application for a mortgage or other type of loan. They may deny your application based on a tax lien. Landlords and employers may also view the tax lien, which could make it hard to rent an apartment or get a job.

Paying tax debt by credit card or personal loan

You can pay an IRS bill with a credit card or a personal loan. Late repaying of either of those loans could affect your credit scores since credit card and loan transactions are usually part of credit reports and your credit score.

The IRS accepts credit card payments through three processors, with interest rates from 2.35% to 2.95% of the balance charged. Two credit card processors also charge a minimum convenience fee of $3.95.

If you fail to pay off a credit card balance completely within one billing cycle, the debt on your credit card could be reported to the credit bureaus and could raise your debt. Using more than 30% of your credit utilization ratio (the credit balance in relation to how much you can borrow) can lower a credit score.

The same goes for a personal loan, and paying either loan late can also lower credit scores. Personal loans have the advantage of having a set number of fixed payments for a certain amount of time, such as two to five years. This can make budgeting easier than credit card bills, which have varying payment amounts that can last for an indefinite period.

The good news is that if you repay a personal loan or credit card balance on time and in full, then your credit score is more likely to rise.

Consider an IRS payment plan

Before a federal tax lien is imposed, the IRS gives you plenty of notice to pay your outstanding tax bill with payment plans and other options.

Payment plans are preferable to liens. Setting up a plan with the IRS when you receive a tax bill does not trigger reports to the credit bureaus. IRS payment plans are not considered loans and do not affect credit scores.

The IRS has many payment plans. A long-term payment plan from 120 days to six years requires owing $50,000 or less in combined taxes, penalties and interest. No setup fee is charged.

A short-term plan of 120 days or less allows a tax bill as high as $100,000. Setup fees of up to $225 are required, though the interest rates are relatively low at 3%.

It is important to make every payment on time. A missed payment results in the whole amount becoming due immediately, along with penalties and interest.

10 years to collect tax debt

This is no preferred way to get out of a federal tax lien, but the IRS has a 10-year statute of limitations on collecting tax assessments. In theory, you could wait out the IRS for 10 years, when the IRS can no longer legally try to collect taxes you owe. That clock starts on the date of assessment for each tax year.

If you intentionally try to defraud the IRS, called tax fraud, there’s no statute of limitations and the IRS can charge you with a crime at any time.

Other ways to manage your taxes and credit scores

Paying your taxes on time is the best solution. If possible, avoid paying with a credit card or loan so there is no way for your credit score to be impacted.

One way to ensure you’re paying enough taxes is to check the withholding amount through your employer. The IRS has a tax withholding estimator online to help workers estimate how much federal income tax should be withheld so that they don’t owe anything later. 

This pay-as-you-go tax is easier via payroll during the year than with a surprising amount at tax time. You can change your withholding amount at any time and should check it early in the year, especially if you’ve experienced a life change such as a marriage, home purchase, birth or retirement.

If you ever do get a letter from the IRS, pay attention. Failing to pay your taxes on time is a serious matter, and the worst case is that you face a tax lien and could lose your home and other assets to pay the bill. Starting an affordable payment plan early can make that outcome much less likely.

Two ways to improve your credit score are by paying all your bills on time and not carrying too much debt. While tax debt itself does not affect credit scores, failing to repay a loan used to cover tax debt may impact credit scores.

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The three Rs in education are Reading, wRiting and aRithmetic. Most people agree that those basic skills are necessary for life. What about money management? Knowing how to spend, borrow, save and invest wisely. It could be argued that financial knowledge is as important as the three Rs. Since April 2023 is Financial Literacy Month, it’s a good time to discuss why financial literacy should be taught in schools.

Why financial literacy as a 4th basic skill?

Why do we need to improve our financial literacy? Because in the US, financial ignorance is taking a terrible toll, and financial problems tend to spill into other parts of life. Researchers reported in the Journal of Marriage and Family that money stress often leads to health problems, emotional issues and poor marital relationships.

Poor credit ratings

Being uneducated about money is linked to lower credit scores, and failure to build credit can deny families home-buying opportunities. Harvard University’s Joint Center for Housing Studies claims that homeownership is the most reliable way to build wealth and that the average homeowner’s wealth is 40 times that of the average renter.

In addition, consumers without good credit pay much more for everything they finance, including autos, homes, credit card balances, and education. Credit card rates for people with excellent credit run about 10% lower than those with fair or poor credit (just under 19% vs nearly 29% as of March 2023). When families spend more on financing costs, less money is available for savings or other purchases.

Student loan balances

Researchers at Old Dominion University surveyed over 1,000 grads and most said they were unprepared for the impact of their loans and wished that they had received “more financial literacy” during the college decision process and at college orientations. “I had no idea what I was getting myself into at the age of 18 signing all those forms for financial aid,” one grad said ruefully.

Today, it takes students who finance college education an average of 21 years to repay their student loan balances. The difficulty in repaying their loans completely blindsides many grads because they don’t know how much the accruing interest will increase their balances. In addition, students often choose degrees without considering their earning potential or even if they can successfully complete the program. It is clear why financial literacy may be useful before enrolling at college and taking out a loan.

Financial insecurity

According to a recent LendingClub survey, two-thirds of Americans lived paycheck to paycheck in 2022. And nearly three-fourths of those consumers experienced difficulty just covering their bills. Living paycheck to paycheck means nothing is left over after paying your living expenses. In addition, half of Americans have under $500 in an emergency fund. This is far less than the three months of living expenses recommended by experts.

Spending without a budget or emergency savings leaves households vulnerable to unexpected costs or hiccups in their income. In the NPR article Paycheck-To-Paycheck Nation: Why Even Americans With Higher Income Struggle With Bills, exasperated consumer Rhonda Alvarez said, “I make decent money now, and I shouldn’t have to live paycheck to paycheck.” Rhonda also said that she wished schools would teach children money management. “It’s way more important sometimes than algebra or geometry.”

Excess debt

People without much financial knowledge are more likely to experience excessive debt loads, credit problems and bankruptcy. Getting a grasp as to why financial literacy is important may help to avoid these basic financial mistakes.

On the other hand, studies have shown that financially literate consumers are less likely to have credit card debt and more likely to pay off their balances each month. They also refinance their mortgages when it makes sense to do so to minimize interest expense. In addition, financially savvy adults avoid borrowing against their 401(k) plans and are less likely to resort to expensive loans from payday lenders, pawn shops and auto title lenders.

Unprepared for retirement

A recent McKinsey study found that 80% of Americans are financially unprepared for retirement. That’s a serious problem because those who fail to save for retirement may depend on Social Security payments to survive, and the average Social Security check in 2022 was $1,656.30.

Why would so many be setting themselves up for poverty once they stop working?

Theresa Ghilarducci, professor of economic policy analysis at The New School for Social Research in New York, claims few of us have the financial literacy needed to retire successfully under our current system. “The U.S. is the only industrial country that depends on untrained individuals supplementing their own basic Social Security and long-term savings with a system of voluntary contributions and retail investment products,: she said. “It’s like requiring everyone to do their own home electrical wiring and dental work.”

American retirement is unlikely to change in the near term, so future generations need a better understanding of how savings, investing, and compounding interest work. The sooner, the better, since the earlier you start, the easier it is to save enough for a secure retirement.

Understanding why financial literacy is important

Financial literacy means acquiring these important basic financial skills, which may be considered life skills.

• Establish a savings habit.
• Avoid unnecessary debt.
• Create and stick to a budget.
• Borrow wisely when necessary.
• Establish and protect a good credit rating.
• Plan for retirement.
• Invest correctly for different life stages.
• Insure against catastrophic losses.

Studies have shown that students with higher financial literacy are less likely to incur late fees, use payday loans or make only the minimum payments on their credit cards. And states that have deployed financial literacy programs are getting good results. For instance, within three years, Georgia, Idaho and Texas saw credit scores rise and delinquency rates fall. These are good reasons why financial literacy should be part of a high school, or even younger, curriculum.

Financial literacy coursework

What should be taught in a high school financial literacy class? The Federal Reserve Bank has developed this standard personal finance curriculum for older students. Our kids should know these things, and so should we.

Unit 1: Decision making

• Lesson 1.1: The Art of Decision making
• Lesson 1.2: Opportunity Cost
• Lesson 1.3: Making Choices and Identifying Costs

Unit 2: Earning Income

• Lesson 2.1: It’s Your Paycheck: Invest in Yourself
• Lesson 2.2: Investing in Yourself
• Lesson 2.3: Teaching Human Capital and the Importance of Postsecondary Education
• Lesson 2.4: What Are Taxes For?
• Lesson 2.5: Understanding Taxes
• Lesson 2.6: It’s Your Paycheck: “W” Is for Wages, W-4, and W-2
• Lesson 2.7: Individual Income Tax: The Basics and New Changes

Unit 3: Buying Goods and Services

• Lesson 3.1: Making a Budget—It’s All Spending
• Lesson 3.2: Budget Trade-Offs—A Penny Here and a Penny There
• Lesson 3.3: Big Spenders
• Lesson 3.4: Smart Phones and Budget Changes
• Lesson 3.5: Advertising: Dollars and Decisions

Unit 4: Saving

• Lesson 4.1: Time Preference—Why It Is Hard to Save
• Lesson 4.2: Simple and Compound Interest—Why It Is Great to Save
• Lesson 4.3: Time Value of Money
• Lesson 4.4: No-Frills Money Skills: Growing Money

Unit 5: Using Credit

• Lesson 5.1: The Three Cs of Credit
• Lesson 5.2: Evaluating the Benefits and Costs of Credit
• Lesson 5.3: Credit Bureaus: The Record Keepers
• Lesson 5.4: Cards, Cars, and Currency: The Car Deal Package
• Lesson 5.5: Bankruptcy: When All Else Fails
• Lesson 5.6: On the Move: Renting Basics
• Lesson 5.7: Fast Cash and Payday Loans

Unit 6: Financial Investing

• Lesson 6.1: Meeting Financial Goals—Rate of Return
• Lesson 6.2: Managing Risk—Time and Diversification
• Lesson 6.3: Evaluating Investment Options
• Lesson 6.4: No-Frills Money Skills: Get Into Stocks
• Lesson 6.5: Diversification and Risk
• Lesson 6.6: No-Frills Money Skills: Understanding Bonds

Unit 7: Protecting and Insuring

• Lesson 7.1: Insurance: Coverage and Cost Basics
• Lesson 7.2: Is Insurance Worth Buying?
• Lesson 7.3: The Three Ds of Identity Theft

Parents can take control now

While only about one-third of students have access to financial literacy content at school, parents don’t have to wait to help their kids. The FDIC has created financial literacy coursework that you can download for every grade from K through 12.

Here’s an example of a budgeting activity a parent can do with kids in the third through fifth grade:

“Ask your child to save your grocery store receipts for a week. At the end of the week, to help with the family budget, have your child add up how much money was spent on food.

Discuss ideas to save money on future food shopping trips to meet budget goals. You can also
invite your child to collect the receipts for a longer period of time (several weeks or months) to keep
track of progress toward goals. Check in regularly to discuss as a family.”

That exercise seems like it would be good for most adults as well.

The good news is that with the right personal finance skills, most people can build a decent credit score, learn to budget, avoid excess debt and save for retirement. With the right tools, you can live better today and enjoy more security tomorrow.

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Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

The post Beyond the 3 Rs: Why financial literacy should be a 4th basic skill appeared first on Credit Sesame.