What is the Difference between a Credit Score and a Credit Report?

Many people use the term credit score and credit report interchangeably. Although mistaking them may seem harmless, credit scores and credit reports are very different. As stated in the name, your credit score is exactly that, a score. This score is a numerical value that is calculated and used by lenders to determine the risk associated with giving a borrower a loan.

The formula most often used to calculate a credit score takes into account a person’s payment history, amount owed, length of credit history, new credit and type of credit used. A person may receive a different credit score from each lender or reporting agency because the formula used to calculate the credit score will vary. The reason for the variance is because there are different types of credit score scoring models such as FICO, the most commonly used right now, and VantageScore, which both lenders and consumers are starting to use more often.

On the other hand, a credit report is a report of a person’s credit history. A credit report will include information such as a person’s social security number, current and previous addresses, and employment history. Besides this, a person can find a list of their lines of credit such as credit cards, student loans and mortgages, the date each one was opened, credit limits, and whether their accounts are past due or in good standing. Bankruptcies will also appear on someone’s credit report as well as the names of companies that have recently asked to see the person’s credit report.

Overall, it is also important to check your credit score in order to know where you stand, credit wise, and to be prepared for any outcomes on your credit applications. It is also important to remember to check your credit report to catch identity theft. A person should also check the credit reports from all three credit bureaus to ensure that all three credit bureaus have accurate information. As stated earlier, a credit score and a credit report are not the same thing, but they are closely related. The reason for this is because the information on a credit report is used in the calculation of a credit score.

Written by: Lesly Luna, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017.

How can I successfully achieve my goals?

Creating a savings goal is commonly confused with creating a dream. For example, when people are asked to create a savings goal for a vacation trip or a car, their response is “I want to go to [location]” and “I want to have a [car model]”. This only represents what the individuals want (a dream) without creating a reasonable process (savings goal) to achieve this end product.

That being said, we peer educators at the Financial Wellness for College Students program advocate S.M.A.R.T. Goals. When creating a savings goal, it is important that you incorporate all five of these components: Specific, Measurable, Agreed Upon, Realistic, and Timely.

Specific: Make your goal well defined so that it can be clear to anyone who has a basic knowledge of your project.

Measurable: Create an easy way to keep track of your goals that allow it to be motivational to achieve.

Agreed Upon: In cases when your goal involves others, collaborate and make sure that everyone acknowledges the goal.

Realistic: This allows your goal to be results-oriented and a reasonable-seeming accomplishment.

Timely: Create a timeline when this goal will be achieved. Being able to track your progress encourages you to continue and see that the effort is effective.

Download a handy form to write your own S.M.A.R.T. goals.

Written by: Rex Wang, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017.

How do international students file a U.S. Federal tax return?

Filing a tax return is not as difficult as you imagine so don’t postpone it until the last minute! To prepare your U.S. Federal tax return, the first thing you need is access to Glacier, a tax preparation software. Generally, the ISSS office will send out an email with a link to Glacier in early February.

After you log in, all you need to do is to follow the instructions on Glacier. The first step is to enter your personal information. Glacier will determine what forms you should prepare for the tax return depending on your visa and residence status. If you are an International student and stay a significant amount of time with only salary income during the past year, you will be required to file 1040NR-EZ and 8843 forms. Don’t worry if you don’t know how to complete these forms because Glacier will help you.

However, Glacier does not know what income you have so you need to recall all the sources of income you gained during the past year. You may need to gather a variety of forms:

  • If you work for the University and received wages, you should find a W-2 form (contact the University Payroll and Benefits if you don’t find your W-2 form online);
  • if you have U.S. income subject to withholding, you need form 1042-S;
  • if you have scholarship or fellowship, you will need the grant letter from your academic institution instead of form 1042.

Now that you have all the documents, you can start the most time-consuming yet important step: entering the numbers into Glacier. At the end of the process, Glacier will tell you if you owe or overpaid taxes. However, Glacier is just a software that helps prepare all the forms needed for your tax return, rather than a way to submit your tax return forms. You will need to download the forms that Glacier prepared for you, sign your name and date with PEN (not pencil), and mail all the required documents to the IRS. The address and necessary documents will be shown on Glacier. Don’t forget the due date varies (although it’s usually April 15th) and make sure you check the date online and mail your forms before the deadline! You can easily find every year’s deadline by googling it.

In summary, there are three important things to file your tax return: get access to Glacier, collect forms that show you have an income, and mail the required documents to IRS before the deadline. Start early, or you will find an hour-long line at the post office and don’t ask how I know that.

Written by: Linxi Liu, Financial Wellness Peer Educator, University of Illinois Extension, 2017.

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017.

What is a discount broker?

A discount broker is somebody (typically a stock broker or brokerage firm) that charges a small fee on orders they carry out for you. An order is the process of submitting a request to buy or sell a stock. Below are the main pros and cons of a discount broker.

Pros

  • Small fee (typically less than $10 per transaction)
  • Simple

Cons

  • No additional services

As you can see, the disadvantage to a discount broker is that the only thing they do is carry out the order for you. On top of carrying out the order, a full-service broker offers investment advice, retirement planning, tax tips and more for their clients. But remember, those extra services come at a price. Depending on your needs, it may be in your best interest to consider a discount broker. They are simple and relatively inexpensive. Just be sure to research your investment choice!

 

Written by: JT Donahue, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017

Early In My Career: Is it necessary to understand the difference between a Traditional and a Roth IRA?

During our college years the thought of retirement is way down the road, so far down the road, a lot of college students and recent graduates don’t even bother thinking about it. There is a false notion that people do not need to start thinking about retirement until we are well into our careers. However, becoming aware of what retirement plans can offer and contributing to them early can make your retirement that much more enjoyable.

Many people are confused about the difference between a Traditional and a Roth IRA, or if a difference even exists between the two. An IRA is an abbreviation for Individual Retirement Account; it is available for any working Americans. The two most common IRA’s are the Traditional and the Roth IRA.

In a Traditional IRA, the account owner puts pre-tax dollars into their account. Once the owner withdraws their money from the account they then pay ordinary income tax on the withdrawals.

In a Roth IRA the individual pays tax on income, then puts after-tax dollars into their Roth account. If the money has been in the account for at least five years and the owner is 59 ½ years old the principle and earnings are both tax-free when they decide to withdraw from the account. Roth IRA’s are typically a good idea for young people because they have many years for earnings to grow tax-free. Roth IRA’s also appeal to those who believe their tax bracket is likely to be higher in the future.

For more details about the differences between the two, read Traditional and Roth IRA’s, https://www.irs.gov/retirement-plans/traditional-and-roth-iras

 

Written by: Brandon Wyeth, Financial Wellness Peer Educator, University of Illinois Extension, 2017

Reviewed by: Kathy Sweedler, Consumer Economics Educator, University of Illinois Extension, 2017