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Student Financial Aid

Credit Management

How credit impacts your life depends on how responsible you are. Credit can be a useful tool, but it can also get you into trouble. You need to build credit to prove your credit worthiness. Once you accept credit, you enter a contract to receive something of value now with a promise to pay the lender at some date in the future, with interest. An important thing to remember is that credit extends beyond the purchase of goods. Landlords, loan lenders and some employers will review your credit and payment history. A good payment history demonstrates responsibility, a trait most employers seek. The goal of credit management is to show those who inquire about your credit that you are responsible and able to control your spending.


Understanding Your Credit Report

What is a credit report? 

A credit report contains information about your credit, bill repayment history and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using and whether a debt or bill collector is collecting on money you owe. Make sure you review your credit report to ensure that the information is accurate. If there are any discrepancies, contact the credit reporting agency that provided the report containing the error. 

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Who collects and reports credit information?  

There are three major credit bureaus—Equifax, Experian and TransUnion—that gather and maintain information about you that is included in what is known as your credit report. The credit bureaus get information from your creditors, such as banks, credit card issuers or auto finance companies. They also gather information about you from public records. Information in one credit bureau's report may be different from the information in another credit bureau's report because each credit bureau gets its information from different sources.

How long does information remain on your credit report? 

Positive information remains on your credit report indefinitely. Negative information remains on your credit report between seven and 10 years. Hard credit inquiries remain on your credit report for up to two years. When you apply for credit, you authorize lenders to ask or "inquire" for a copy of your credit report from a credit bureau. 

Who is allowed to see my credit report? 

Credit bureaus can provide credit reports only to lenders from whom you are seeking credit, lenders that have granted you credit, phone and utility companies that may provide services to you, your employer (only if you agree), insurance companies, government agencies and anyone else with a legitimate business need for the information (e.g., landlords or banks). 

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Understanding Your Credit Score

What is a credit score?

Your credit score is a number generated by a mathematical algorithm using information in your credit report. It is designed to predict risk, specifically, the likelihood that you will become seriously delinquent on your credit obligations in the 24 months after scoring. The two biggest factors that determine your credit score are payment history (35 percent) and amount owed (30 percent). Other factors include the length of credit history (15 percent), new credit (10 percent) and types of credit used (10 percent). Generally, a longer credit history will increase your score. New credit is based on how many new accounts you have established, how long it has been since you opened them and how many requests for credit you have made. The type of credit used is based on the overall mix of credit cards, installment loans, mortgage loans, etc. that you have. The more balanced the mix, the more likely this factor is to improve your score.

How to establish credit 

  • Use secured credit cards. A secured credit card is just like a regular or unsecured credit card, though you are required to put down a security deposit to provide assurance to the creditor that you will repay your debt. Your credit limit is often the amount of your security deposit or a percentage.
  • Use store credit cards. Make sure you are aware of the interest rate, which may be higher than a bank credit card, and try to pay off the balance each month.
  • Use gasoline credit cards.
  • Place your apartment utilities in your name.

How to maintain a good credit score 

  • Pay your bills on time.
  • Keep your credit card balance(s) low or at zero.
  • Manage your debt.
  • Check your credit report regularly.
  • Do not overdraft your account or bounce checks.
  • Only apply for credit you need. If you close a credit card account, your credit score may decrease due the change in your credit history.
  • Contact your lender if you fall behind on your payments.

 

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