Credit-Literacy Lessons for Young Home-Buyers

We already know many first-time home buyers are young and broke. Turns out they've got a lot to learn about credit, as well.

Four out of 10 credit-card holders ages 18 to 29 made only the minimum required payment on their cards in the past year, says a survey by the FINRA Investor Education Foundation, a nonprofit financial literacy firm based in Washington, D.C.,

Generation Y is graduating from college with a record-breaking amount of student-loan debt -- and into a job market with slumping entry-level employment and salaries. But deciding not to pay anything above the minimum card payment lowers one's credit score, a disadvantage to those looking to make larger purchases, such as a car or first home.

That's why it's crucial for younger home-buyers to get on top of their credit-card debt now, says Gregory B. Meyer, community relations manager for Meriwest Credit Union in San Jose, Calif.

Here are some of Meyer's tips for remaining credit-worthy enough to buy a home:

Pay Credit Card Debt First

"New grads generally have six months before they need to pay their student loans back," says Meyer. "Focus on paying down consumer debt like credit cards or personal loans before making payments on those student loans." While student loans might look intimidating, federal programs like Stafford and Perkins loans come with protections such as deferral and forbearance options, low interest rates and plans that cap your monthly payments; that's according to the financial aid website Finaid.org. Credits cards won't give you that luxury.

Track Your Day-to-Day Spending
"Establish a spending plan and use your online banking to track your spending. And observe your account at least weekly to avoid overdrafts and bounced check charges," says Meyer. "If you don't have the money in your account, don't spend it." If that sounds impossible, don't sweat it. Online tools at Mint.com help you track your dough, while savings tools like the one at Feed the Pig can help you reach your savings goals.

Spend Wisely
All the planning in the world won't mean diddly if you continue to blow your whole paycheck every week. "Don't incur any new revolving debt or apply for any new cards until you are gainfully employed," says Meyer. "It's a no-brainer, but some grads go crazy and buy new TVs, surround-sound equipment, cars, musical instruments and other big ticket items. Can you hear 'dumb, dumb, dumb' in the background? How much is a transmission or other major repair for your car? That is a good use of the card. Taking your girlfriend out on the town, because you said her fanny looked big in her new jeans and you have to make it up to her, is a poor reason."

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