Since it might be good to know…
1 cent: Abraham Lincoln
5 cent: Thomas Jefferson
10 cent: Franklin D. Roosevelt
15 cent: Harry S. Truman
25 cent: George Washington
50 cent: John F. Kennedy
$1 coin: Sacagawea
$1 bill: George Washington
$2 bill: Thomas Jefferson
$3 bill: Grover Cleveland
$5 bill: Abraham Lincoln
$10 bill: Alexander Hamilton
$15 bill: Ronald Reagan
$20 bill: Andrew Jackson
$50 bill: Ulysses S. Grant
$100 bill: Benjamin Franklin
Introduction
I decided to take a look at my credit recently, since I’ll be graduating soon. I’ll need to get credit to rent an apartment, get loans, and so on. Here’s what I came up with:
Credit Reports
Everyone gets to take a look at their credit reports, provided by the three main credit companies – Experian, Equifax, and Transunion. The reports are free, and can be accessed through the site http://annualcreditreport.com. This is a legitimate site, as mentioned on the FTC’s official website: http://www.ftc.gov/freereports The credit report lists your history of credit, including information about payments, balances, loans, and credit checks. It’s very useful to take a look at. For me, I was happy to find that I had never been late on a payment, but I was surprised at how many credit cards I’d opened over time.
Credit Score
Your credit score is what lenders look at when determining your eligibility. This is NOT free for you to look at. I made the novice mistake of requesting my VantageScore, which is an alternative to the FICO score. The VantageScore is cheaper to order (~$9 from Transunion), but it is on a different scale and scoring system than the FICO score, which is most used. You can go to http://myfico.com to buy your FICO score ($16 per report per credit company).
My VantageScore was 810 (on a 501-990 scale), at the 54th percentile. Transunion ranked this a “B”, and cited my weaknesses as not having enough diversity of credit and not enough length of credit history. Once I take loans on real estate and get a little older, this will be no problem.
I didn’t bother ordering a FICO score because myfico.com was having some technical problems. It’s not legit to do a straight arithmetic conversion because of different distribution and calculation methods. For example, my FICO score directly converted would be around 680; however, at the 54th percentile, it would actually be around 730-740.
Here is a graph of what goes into your FICO score. As would be expected from a college student, I am weak in “Types of Credit Used” (all I have are credit cards and student loans) and “Length of Credit History” (only 3 years worth). My credit limits have been increasing, but I’m not sure if that’s good enough for high scores in the “New Credit” category. What I’m perfect in is “Payment History” and “Amount Owed.”
Credit Cards
I realized that I have a lot of credit cards, so I wanted to close some. Usually, it’s not recommended to close credit cards without annual fees, even if you don’t use them. The reasons are that you will lose that credit history from your credit report (in 10 years or so), and reduce the amount of your total credit. Luckily, this wasn’t a problem for me. I found that I had three credit cards from Citibank, one of which I had been infrequently using and two that I rarely used. I asked the representative to consolidate the credit limits for the three cards into one of the cards and close the other two. This way, I maintained my total credit line.
I also found that I had two Chase Amazon.com cards. Again, I was able to consolidate the credit limits, close one card, get a free extra bonus points, and upgrade my rewards program.
The only bank that I was not as pleased with was Bank of America. They quickly closed my account without questions, but made no effort to keep my account open. They refused to give any increased rewards programs, a factor that makes me reconsider my preferred use of their card. In comparison, for one of my cards, Citibank offered a 1% cash returns increase to my existing cash returns. For another, they offered 3000 extra reward points for $300 of spending. I would normally spend this amount anyways, so I would get 3300 points on $300, which comes out to about 11% rewards. Not to turn this into a rant against Bank of America, but I’ve found their customer service to be weak.
Conclusion
There’s a lot to learn about your credit! For fellow graduates, now is as good a time as ever. At the least, you’ll avoid wasting $9 like I did on a score that few creditors use; at best, you may save yourself a lot of headache later on in life. Good luck, and as usual, send me your questions and comments.
Read the news lately about Obama’s appointments to Secretary of Treasury and Secretary of Health and Human Services? Yup, their nominations are questioned for the same reason – tax problems. Tom Daschle and Timothy Geithner have had their professional career futures in jeopardy because of tax problems. Want to avoid the same issues when you run for Cabinet or President? Read on!
Most students will need:
Form 1040EZ (http://www.irs.gov/pub/irs-pdf/f1040ez.pdf)
Instruction 1040EZ (http://www.irs.gov/pub/irs-pdf/i1040ez.pdf)
W2 (from your employer)
All you need to do is to fill out the one-page Form 1040EZ with your combined income. Flip to page 28 in the instructional manual for the tax tables, and to the last page for where to send your tax forms in). If you mail in your tax return, all you need to do is to send in your 1040EZ and one copy of your W2 (usually a perforated section that says “For Federal Filling”). If you have interest to report, include your 1099-INT as well, and put that in line 2 of your 1040EZ.
For instructions on specific sections of the 1040EZ, please read the instructional manual. Generally, everything will be blank unless it’s listed on your W2. For Section 5, your parents CAN claim you, unless you don’t want them to. Keep in mind that by claiming yourself, you’ll save up to $300 or so but your parents will lose out on a lot more. If you’re making under $5450, you won’t save anything (you are only taxed on income OVER $5450).
If you have dividends to report, deductions to claim, or make over $100k, then you can’t use the 1040EZ. Look at http://www.irs.gov for the appropriate form (most likely the 1040).
Whether to E-File? – Yes, you can e-file for free. But the 1040EZ is so easy that I prefer to file on paper. All the e-filing is done through third-party websites, so you have to give them your personal information. (The same is not necessary true for state filing – see below).
You might need:
Mass Webfile – (https://wfb.dor.state.ma.us/income/Default.aspx)
State taxes can be more complicated. Let’s start with the simplest scenario: you only worked in Massachusetts. You will need to send in Form 1 and Schedule HC. Form 1 is the standard tax reporting and Schedule HC is proof of health insurance – if you’ve read the news or taken any health policy classes at Harvard you probably know already that Massachusetts has a health insurance mandate. Here it is in action.
Instead of filling out those two long forms though, you can simply use Mass Webfile – (https://wfb.dor.state.ma.us/WEBFILE/BUSINESS/Public/Webforms/Login/Login.aspx). If you fill this one web form out, you won’t need to send in a separate Schedule HC or anything else.
For your Health Insurance Company’s Federal ID number, just give them a call. If you happen to have Anthem Blue Cross of California, their FID# is 95-3760980.
However, if you have income reported in multiple states, things are a little more complicated. Our lovely 50 states have varying laws about taxable income. Some are more lenient (no tax or only interest/dividend tax). Some states only tax the portion that you earned in that state if you are a part-time or nonresident. Some states tax ALL of your nonexempt income regardless of which state it was earned in. New York is such a state. So if you worked 3 months in New York and 9 months in Massachusetts – sorry, you owe New York state taxes on all 12 months.
What you can do is download the tax forms for each state, and see what category you fall into. A discussion of each state’s tax nuances is beyond the scope of this simple blog post. But if you have any questions, please leave a comment and I will try to answer it.
This section is an addendum, put in after a comment from a friend. I thought it might be important enough for people to reference.
If you earn money from outside work but do not receive a W2, you still need to report it. Examples including tutoring through a company as a “private contractor”, tutoring as a sole proprietor, and even babysitting. If you make over $600, then your “client” is required to report the income to the government and send you a 1099-MISC. This means you must report the income or you can get in trouble in an audit. But even if you make under $600 or if your client neglects to give you a 1099-MISC, you should still report it – it just becomes a sort of “honor code.”
How do you report it? In short, you cannot use the 1040EZ. You must:
1) File the main tax form 1040 (http://www.irs.gov/pub/irs-pdf/f1040.pdf)
2) Attach Schedule C (http://www.irs.gov/pub/irs-pdf/f1040sc.pdf). If you make under $5,000, you can use Schedule C-EZ (http://www.irs.gov/pub/irs-pdf/f1040sce.pdf) instead of Schedule C
3) Regardless of which form you use, you need to attach Schedule SE (http://www.irs.gov/pub/irs-pdf/f1040sse.pdf) if you make over $400.
This is the point where taxes are no longer quick and easy. You can read the forms and their accompanying instructions for further information. Of course, you should also verify what I say with a tax professional or the IRS tax code – I claim no liability even though I believe my information is correct.
Good luck
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