Credit Scores: It’s All About You

Most financial advisers suggest that undergraduate students start establishing a credit history while still enrolled. Getting a credit card is a popular way to establish credit and there are good reasons to do so. But there are also serious pitfalls.

Benefits of using a credit card:

• Convenient way to make purchases and track spending.
• Safe way to avoid carrying too much cash.
• Making on-time monthly payments can help establish credit.
• Certain cards may offer benefits, such as cash back rewards, etc.

Hazards of using a credit card:

• Easy to impulse shop and overspend.
• Not paying on time can hurt your credit score.
• Paying only minimum payments can hurt your credit score.
• Charging up to your credit limit and paying only the minimum may lead to years of debt.

Establishing a good credit history while in college makes it easier to access credit after graduation for major expenditures such as renting an apartment, buying a car, buying a home, etc. Be vigilant in budgeting monthly expenses while you are still in college so you can control what you spend and make your credit card payments on time.

A credit score is a numerical representation of how much risk a financial institution associates with lending money or extending credit to an individual.

Scores range from 300 to 850 and are based on an individual’s credit history. Included are bill-paying history, amount owed versus available credit, length of credit history, amount of new credit, types of credit, and other factors.

Those with higher scores are considered lower risks and thus are offered better terms, including lower interest rates. Those with lower scores are considered higher risks and are offered less attractive terms or may be denied outright on a loan application.

Detailed information about your credit history is available on your credit report. Everyone is entitled to one free credit report per year from each of the three credit bureau companies. Request your free credit report at AnnualCreditReport.com—don’t use sites that require a fee.

Three major credit bureaus record and maintain information about your credit history:

• Equifax
• TransUnion
• Experian

Check your credit history periodically to ensure that there are no errors that could reflect negatively on your credit score. Follow the credit bureau’s instructions for correcting any information you believe is inaccurate.

Because you are entitled to only one report per year from each of the credit reporting companies, you may choose to request and review your credit report from one of the three companies every four months, so you don’t exceed the “one free report per year” limit.

• Pay down your debt starting with cards that charge the highest interest but continue to make on-time payments on any other cards you may have.
• Stop charging new items and pay more than the minimum required.
• Avoid late payments.
• If you’re having trouble paying a bill on time, call them and request a modification.
• Don’t carry an excessive number of credit cards.
• Stay away from “too-good-to-be-true” offers.
• Routinely monitor your credit report.
• Make a realistic monthly spending plan and stick to it.
• More on how to improve your credit score from myFICO.