By definition, credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Credit is an important part of financial education for students.
When a business lends you money or provides you with credit, it is putting good faith in the fact that you will pay it back. As a student, you don’t have a long credit history, so the business is taking a chance on you. If you don’t pay it back on schedule – or at all- it will affect your ability to receive credit in the future - from that business and from others.
When you have “bad credit”, it can affect your ability to get a loan, a credit card, rent an apartment, or even get a job.
How do I establish credit?
How does a credit check work?
What is a credit score?
How can I check my credit history?
Do I have the right to free credit scores?
What is derogatory credit?
- Default on student or other consumer loans
- Excessive delinquency (late payments)
- Excessive trades (high number of credit accounts)
- Thin credit file (small number of trades or very little credit history)
- Delinquent accounts or accounts in collection status
How can I improve my credit?
- Correct any mistakes on your credit report. You can do this by reviewing your credit report annually from each of the three national credit bureaus and contacting your creditors about errors. Keep in mind it can take up to 3 months to get errors corrected after you dispute them.
- Reduce your credit card debt. The amount of money you owe on your credit card vs. your credit limit can affect your credit score. By lowering the ratio of debt to available credit, you can improve your score.
- Make on time payments.
- Pay attention to the tips on how to improve your credit score on your annual credit report.
How do I maintain/establish good credit?
- Pay your bills on time.
- Avoid defaulting on your loans.
- There are options available to you to help reduce your federal student loan payments, such as extended repayment. Deferment or forbearance might also be available to you. If you are having trouble making payments on your student loans, make sure to contact your lender immediately to learn about available options.
- Regularly monitor your credit report. You many obtain a free credit report each year at www.annualcreditreport.com. Monitoring your credit report allows you to identify mistakes and identity theft early on. Dispute all errors.
- Limit the number of lines of credit you have in your name, especially revolving lines of credit, such as credit cards.
- If you are able to, pay off entire credit card balances each month. If not, pay as much as you can per month, even if it means making some sacrifices.
- Avoid bankruptcy.
- If you are maintaining balances on more than one credit card, avoid maxing one out while maintaining a very low balance on another. Try to keep moderate balances on each.