Credit or Debit?

Who Needs Good Credit? You Do!

Many students are not aware of the impact their credit will have on their financial future.  For starters each one of us has a credit report.  This credit report contains our individual credit scores or FICO score.  Your FICO score can determine the interest rate you will be charged on loans such as your student loans, car loans and mortgage loans.  It can have an impact on how much you pay for an automobile or insurance.

People with less than perfect credit may spend a substantial amount of money on things like interest. Because the employment and housing markets are so competitive, employers and landlords will look at the credit reports of their applicants.  Bad credit could cost you the perfect job or apartment.

As of August 2005 everyone is entitled to receive a free copy of their credit report each year.  You can get yours online at annualcreditreport.com.  Once you’ve received your copy – find out how to make the most of it!

While annualcreditreport.com will provide you with a FICO score as well, it is a simulated score. To obtain your real FICO score – and find out how your credit report and credit score relate – please visit myfico.com. For a small fee, you can find out yours!

Credit vs. Debt

Credit is a financial term that refers to the granting of a loan and the creation of debt.  There are different types of credit.  Most of us are familiar with credit cards, loans including student, mortgage loans and car loans.

Good Credit

Having good credit is important when you apply for a car loan or even a loan for the home of you dreams.  Your credit can influence the amount of money a lender may be willing to lend you.  It can also influence the interest rate at which you borrow the money.  When your credit is good you pose less of a risk to the lender and you are rewarded with a lower interest rate.

How do I know if I have good credit?

Everyone has a credit report that provides lenders with a credit score.  The score helps lenders determine our risk level when we want to apply for a loan or credit card.  The most common credit score is called a FICO score.

Starting July 2011, as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, consumers who are rejected for student loans, automobile loans or credit card applications are entitled to receive a free copy of their credit score and an explanation of why they were turned down. The reasons can range from late payments to maxing out credit cards. Creditors are also supposed to explain where the score, known as FICO, ranks nationally, and outline the factors that brought the score down. (Chicago Sun-Times)

Bad Credit

Bad credit can be the result of late payments on loans, credit cards and other bills.  Often bad credit is related to a poor history of repaying debt of any kind.  Sometimes having no credit is looked upon as having bad credit.  If you have never borrowed and repaid money there is no history to refer to when assessing your risk as a borrower.

Avoid bad credit by following these steps:

  1. Pay your bills on time.
  2. Limit your amount of debt.
  3. Don’t charge more than you can pay off at the end of the month.
  4. Don’t spend more than you have.
  5. Limit the number of inquiries to your credit report.
  6. Use a budget.

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