Credit is a topic people don’t know too much about. As college students, it is important to know what credit is, why it is important, and how it can impact you. To begin, you should only use credit if you have the money to pay it off. If you don’t, you will be charged high interest rates and it can become a financial burden to pay it back. By not paying it back on time, your credit score also decreases.
Credit is also important for future purchases you plan on making. For example, to get a car loan or a mortgage, those companies will pull your credit score to see if you are someone they consider trustworthy to lend money to. Now let’s take a deeper look into credit!
What is credit?
Credit is “the ability of a customer to obtain goods and services before payment, based on the trust that payment will be made in the future.” It is very important to pay off your credit on time to improve your score. Your score matters!
Who cares about your score (especially being college students?
Financial Institutions distribute interest rates based on credit score
Employers
Landlords
Utilities (cell phone, electricity, etc.)
Insurance companies
What is a credit score and what goes into it?
A credit score is a number between 300 and 850 that ranks how risky of a borrower you are. The score is published by the Fair Issac Corporation (thus credit scores are also called FICO scores), and includes a number of factors about how to borrow money.
Payment History: determined by whether you pay your bills on time or not.
Amount Owed: based on how much you are currently borrowing and how much you’re allowed to borrow.
Length of Credit History: how long you have been using credit, whether it’s in the form of student loans or just using a card for small items.
New Credit: determined by the lines of credit you have opened recently (a lot is bad).
Types of Credit: determined by how many and the types of credit you have, including credit cards, student loans, auto loans, etc.
Do you know what your credit score is?
You can view your credit report form each of the following report companies for free once each year at annualcreditreport.com!
How can you build your credit?
Get a secured line of credit
Pay your bills on time
Limit the number of lines of credit
Keep balances low
Be selective about what you apply for
Have a mix of credit (credit cards, auto loans, mortgage, etc.)
I hope you learned a little bit more about credit! If you have any questions, feel free to make an appointment with a peer mentor on our website, call us, or stop into our office! We are located at 2103 Centennial Hall.
Stay frugal my friends!
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