Credit refers to a contract between the person borrowing money and the organization lending it to them. The borrower and lender agree to terms of repayment of the funds borrowed. Two common forms of credit are loans (student, car, house, etc.) and credit cards.
There are two forms of loans: a
secured loan and an unsecured loan. A secured loan is where there is a
physical item that can be taken back (repossessed) if the loan is not
paid, i.e. a car or a house.
An unsecured loan is where there is no physical item attached to the loan, such as student loans or a personal loan.
Credit cards can be a good way to establish credit but they can also harm your credit with overuse. Credit cards should be used sparingly, if at all while in college.
To build credit or to maintain a good
score, be sure to pay your credit card bill on time. If possible, it's
best to pay the entire balance each month to avoid paying interest. Credit cards will have an interest rate and fees for spending more than allowed or paying late.
If
you are interested in getting a credit card, make sure you know the
terms and conditions of the card, interest rates, annual fees, penalties
and the grace period for late payments.
Here are a few suggestions to follow:
In the United States, there are three
credit bureaus that collect your payment history from various lenders,
creditors, debt collectors, utilities and the courts. These bureaus are Trans Union, Equifax, and Experian.
All three agencies allow for one free annual credit report. Contact the agencies or view their website to find out how to request yours.
Credit Reports
Credit reports contain information
about who you are, including name, address, birthdate and social
security number. It also will tell you how much you owe, to whom you owe
it, if you have any court judgments or bankruptcies, and anyone who has
requested a copy of your report.
Not all lenders/creditors will
report to all three agencies, so some items may not appear on your
report from one bureau, but will from another.
Credit reports are
used to help lenders determine whether or not they can approve you for a
loan or for a credit card. They also may be used to determine
employment and whether you are able to rent an apartment.
Depending
on your credit history, these reports will determine what type of loans
you qualify for, what your interest rate will be and if you will need a
co-signer.
Negative items on your credit history such as late
payments remain on your report for an average of seven years.
Bankruptcies can stay on your report longer.
Judgments, lawsuits and criminal convictions are other harmful items on your credit report.
Credit Scores
A credit score determines your
credibility as a borrower and how good you are at making payments.
Credit scores range from 300 to 850. The higher the score, the more
likely you are to be approved for credit and receive a lower interest
rate.
There are five categories that help determine your credit
score: payment history, amount of debt owed, how long you have had
credit history, new credit that you are seeking, and types of credit
that you are using.
And yes, your student loans and how timely you pay them back will impact your credit score.
Here are a few tips for building and maintaining a good credit score:
Pay bills early or on time
If one of your bills is sent to a collection agency, pay the full balance as soon as possible
Open a savings or checking account
Establish a credit history by using a credit card with a low credit limit
Review your credit history and report errors
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