The Finatical

Week of February 7th, 2023 - Building Credit at 18, U.S. Employment System Delays, U.S. GDP Rises

Finatic

Aditya Bagga

Ksheeraj Sanga

, and 2 others

Feb 07, 2023

Topic Breakdown - Pensions

Introduction

Many people know that having a good credit score is important, but a lot of people fail to realize that you can actually start building your credit score at or before the age of 18. You’ll learn how in this article! To begin, credit scores are typically measured from 300 to 850, with a score closer to 300 being poor credit and a score closer to 850 is excellent credit. Borrowers in this category are regarded to be low-risk, so they’ll have a much easier time obtaining a loan than consumers with lower credit ratings. This is exactly why credit is important: having good credit can get you approved for loans and give you lower interest rates. 18-year-olds should build their credit history as soon as possible so that they can get better insurance rates, have a smoother experience renting an apartment, and, eventually, have an easier time applying for home mortgages and other forms of loans.

Types of Plans

So how exactly do you start building credit at 18? Well, you can actually start building credit before 18. There is really only one way to do this, and it’s by becoming an authorized user on your parent’s credit card. According to Chase Bank, “adding your child as an authorized user can help a young person build credit: the minor gets to "piggyback" on the good credit behavior of the original cardmember.” Keep in mind, however, that this will only build good credit if the parent paying off the card stays on top of their payments and has good credit themselves. Once you’re 18, building your own credit is even easier! The first thing you should do once you're 18 is to get a credit card. There are many great starter credit cards that have very low fees aimed at beginners. Once you get a card, keep a low balance on it and always pay it off on time. This way, you can benefit from some of the rewards that credit cards offer, and build your credit score.

Importance

There are also some alternative options to building credit once you’re 18 that you can pair with getting a credit card. One of these options is getting a loan. With credit-builder loans, the money you borrow is held in a secured savings account for you while you repay the loan. You will get the funds back once you have made all of the monthly payments (plus interest). The lender sends your payment activity to the credit agencies, and if you have paid everything back on time, your credit can improve dramatically. The idea is that you can demonstrate your capacity to make consistent, on-time payments over time. Finally, make sure to keep credit utilization low. Borrowers should never "max out" their credit cards by utilizing the majority of their credit limits. A healthy credit usage rate is usually less than 30%, with 10% or less considered great. To calculate your credit utilization ratio, you can use the formula below:

Credit Utilization Ratio = current debt (owed) divided by the total available credit limit

For example, if you have a $1,000 credit card limit, keep the debt at $100 or less to improve your credit ratings.

Financial Trends

U.S. Employment System Plagued With Delays

Currently, the status of the U.S. unemployment system has been all over the place. It has nearly been 3 years since the Covid-19 pandemic took place and caused the worst jobless crisis in the U.S. since the Great Depression, but now unemployment levels have recovered to near-historic lows. For the majority of the past year and this upcoming year, applications for unemployment insurance have been at or below their pre-pandemic trend. However, there is a large number of American citizens that desperately need jobless benefits but aren’t getting them quickly from the government – a dynamic that is at odds with a lack of urgency to resolve this issue in the system.

According to the Federal government, a first payment is considered “timely” if the state issues its funds within 3 weeks of an initial claim for benefits. The U.S. The Department of Labor has reported that at the peak of the pandemic, 97% of these payments were paid timely, where that percentage has now dropped to 78%. Unfortunately, the payments to workers that file an appeal over a benefit decision are far worse than any other demographic. For instance, less than 48% of hearings in lower appeal circuit courts are resolved within 4 months. Prior to the pandemic, it was nearly 100%, resolving the issues of workers almost immediately. These delays of insurance benefits payments need to be resolved as they also affect the real world with: deferred bills, postponed rent (price ceiling), accrued credit card debt, loans, and reliance on community food pantries before payments arrive.

U.S. GDP Rises Higher Than Expected

Despite facing a lot of turmoil and struggles, the U.S. economy was able to finish 2022 fairly well with questions about whether the economy’s growth will become negative in the following year. According to the Commerce Department, fourth-quarter gross domestic product (GDP), which is the sum of all the goods and services produced from October to December, rose at a 2.9% annualized pace, with the Dow Jones predicting a rise of 2.8%. However, this growth rate was a little bit lower than the 3.2% pace compared to the third quarter. The main cause for this slight decline was due to stocks giving varied returns on investments while Treasury yields were significantly higher.

Consumer spending accounts for nearly 68% of GDP and with inflation readings constantly moving lower towards the end of the past year; the personal consumption expenditures price index increased by 3.2%. While inflation numbers have indicated that they are receding, they are still well above the Federal Reserve’s goal of 2%. Recently, the nation’s GDP was able to increase from the number of consumers investing more in a private inventory of properties coupled with government spending and nonresidential fixed investments. The Fed’s aggressive interest rate increases that were aimed to tame inflation are expected to cool down this year to let the economy ease back into its normal state and provide relief to the nation's citizens.

Financial Guidance

“You must gain control over your money or the lack of it will forever control you.” –Dave Ramsey

While money is not everything, the reality is that money is still a crucial part of our lives, and it is important that you make yourself financially responsible so that the lack of money isn’t something that controls your life.

Term of the Week

Cartels: Cartels are groups of various market participants who participate in collusive activities to increase their profit margins. In contrast to a monopoly, which is where one firm dominates the entire market, a cartel is a union of separate groups acting together to achieve similar results. Usually, cartels consist of groups in similar industries or groups that hold various roles in the production process of goods.