issue that depending on how you manage it, it can make or break
your financial life. To make credit work for you, it is
essential that you understand your own credit and what your
credit information says about you to the growing number of
companies that use credit information to make life impacting
decisions about you. These companies include lenders, insurance
companies, employers and utility companies. The objective is to
help you better understand and, therefore, leverage your credit
history in order to get the most out of this essential force
throughout your life.
Benefits and hazards of credit cards
Student Credit cards enable online purchases, from text books
to concert tickets, make it possible to rent a car, and help
with medical emergencies or vehicle breakdowns. Used wisely,
credit cards can be helpful throughout college, and can assist
you in the development of financial management skills. Also it
is vital to know that your credit score affects your ability to
get, car loans, and home mortgages after graduation. Future jobs
and insurance premiums can also be influenced by your credit
score. By paying your bills in full or in a timely manner, a
credit card will help you establish a good credit score.
Late payment or no payment will earn you a poor credit score.
With a poor score, you find it difficult to make important
purchases like your first car or that condo, if you get the
loan; it will be at very high cost. Also it is important to know
that Banks make money by charging annual fees, late payment
penalties and interest fees on unpaid credit card balances.
Therefore, card holders with revolving debt (those who do not
pay their balances in full each month) are desirable to the
bank.
Understanding your credit report
Your credit report or credit history is a record of your past
and current credit obligations including your debts and payment
history. Your credit reports, widely recognized as the official
record of how you shop for and manage credit obligations, are
maintained by three national credit reporting agencies, or
credit bureaus: TransUnion, Equifax, and Experian.
Information reported on your credit report
Your credit reports contain a detailed record of your accounts
and payments to banks, credit unions, finance companies,
mortgage companies, credit card companies, retail stores, and a
variety of other creditors. These trade lines detail your
account and payment history, balances, credit limits, debt
burden, and the age of your accounts.
The report also includes inquiries or authorized credit checks.
An inquiry is a posting on your credit report that occurs
whenever it has been accessed. Each credit reporting agency is
legally obligated to maintain a complete record of all inquiries
for, in most cases, 24 months. This record can be as simple as
who pulled your credit report and on what date. Credit related
public records including bankruptcies, judgments and tax liens
will also be found on your credit report.
The credit report also include your personal data, this
includes your name (including previous names and any variations
of your name that are reported by your lenders), telephone
number, address, Social Security Number, birth date, and current
employer. Typically, previous addresses and employers are noted
as well. This information, for the most part, is used for
nothing more than identification.
Information not reported on a student credit report
Your credit report does not include your level of education,
your medical history, purchases paid by cash or check, your
gender, national origin, race, or religion, your investments or
brokerage accounts, your income and your alimony commitments.
Who decides what goes in your student credit report?
Information on your credit reports does not actually originate
with the credit bureaus at all. In reality, the credit bureaus
function more like warehouses: they store data, which is
reported to them from a variety of sources including your
mortgage and auto lenders, credit card issuers, student loan
companies, public record vendors, retail stores and finance
companies.
Understanding your credit score
Credit scores are generated from models that read the data from
your credit reports to generate a three digit number ranging
from 300 to 850. The resulting credit score is designed to
assess your level of credit risk by predicting whether or not
you will pay back credit obligations in a timely manner. Despite
the fact that anyone can build a credit scoring model, the
industry standard is the FICO credit score.
Note also that at any specific moment, the information at each
of the three credit bureaus is likely to differ, due to
different reporting schedules. As a result, the FICO scores
generated from the three credit bureaus will also differ. Since
lenders may review your FICO score and credit report from any
one or all three credit bureaus, it's a good idea to verify that
the information in all three credit reports is accurate so to
ensure a valid score.
It is important to realize that your credit scores are in
constant flux, changing each time information changes, is added
to or deleted from your credit reports. Making a mortgage
payment, applying for a department store credit card and opening
a new line of credit will all trigger changes in your credit
report and, as such, a change in your credit score. A late
payment or the closure of a credit card account will also have
an immediate impact to your credit score.
The following categories drive your FICO credit score:
•Your payment performance history (35%)
•Your current level of indebtedness (30%)
•The age of your credit history (15%)
•Your pursuit of new credit (10%)
•The type of accounts in your credit report (10%)
As you can see, payment performance and level of debt account
for 65% of the points in your FICO score. The remaining
categories are worth fewer points but are still very important
especially for those who are aiming to earn the highest scores.
Taking Control of your credit
Your credit record stays with you wherever you go. Future
loans, credit card accounts, employment, and housing, they all
require clean credit. To create good credit and maintain it you
need to actively manage your credit accounts.
Study your card agreement
Note the grace period, annual fees, cash advance fees, finance
charges, and annual percentage rate (APR). If you plan to carry
a balance on your account, shop around for a lower APR, even if
it means paying a higher annual cardholder fee.
Use credit wisely
Keep track of your current purchases. Avoid large impulse
purchases. Do not use a cash advance to cover normal daily
expenses.
Know your limit
Exceeding your credit limit is usually considered a violation
of your account agreement and may result in additional fees or
penalties, or the freezing or cancellation of your account.
Make more than the minimum payment
If you can not pay off your total balance each month, then at
the very least, try to pay more than the minimum required
Pay on time
Be sure to get your payment in by the due date to avoid a late
fee and possible credit damage.
Keep in touch
If you change your name, address, or job, notify your lending
institution immediately. You do not want to risk a late payment.
Also contact your lender if you cannot make a payment on your
account for any reason. They might be able to arrange special
payment options that help you avoid credit problems.
Enroll in a personal finance course
If you are not a finance or business major you should enroll in
a personal finance class as soon as your schedule allows. If it
is not required coursework, take it as an elective. You will
learn a set of life skills that will not only help you right
now, but also after college and for the rest of your life.
Lovemore Ncube
About The Author: I have years of experience as a Financial
Advisor. I graduated with significant balances on my credit
cards; it took me a while to put my credit on track. If I new
then what I know now about credit cards, I could have done a lot
better. Website: http://www.juniorcr
- Zaid Ali Alsagoff [
