Giving credit its due

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(Photo Illustration | Hannah Hunsinger | The Collegian)

It’s almost impossible to live in the U.S. and to not have heard of the term “credit.” Whether it is card offers sent to your parents’ home, commercials on television or your parents imploring you to manage your money better, the importance of credit when it comes to your personal finances cannot be overstated.

Despite its significance, not many students in college know about the importance of their credit report or how a healthy score can positively impact their lives. Here are a few things you should know about credit that may assist you in making better financial decisions:

Key Terms

Credit Report: According to Powercat Financial Counseling, a personal finance assistance service at K-State, your credit report is a detailed record of your credit history. Think of it as a transcript for your finances. It lists your mortgages, loans received and credit card history. Lenders and creditors can use your credit report to assess your ability to stay financially sound which impacts the kind of loan and financing options they give you.

Credit Score: If your credit report is comparable to an academic transcript, your credit score is your GPA. The higher your GPA is, the more reliable you are as a customer. Credit scores range from 300 to 850. High credit scores can qualify applicants for loans at lower interest rates. According to Powercat Financial, scores of 720 or above receive the best rates.

Free Credit Reports: Federal law requires each of the three nationwide credit reporting companies, TransUnion, Experian and Equifax, to give you a credit report once every 12 months when you request it, according to AnnualCreditReport.com, the official website for free credit reports. This translates to three free credit reports each year. Use these reports as a guide to go over your personal credit and see how you can improve.

Benefits of good credit

While a sense of accomplishment for balancing your books and the knowledge that you have made sound financial decisions is a big benefit of good credit, there are some practical benefits as well.

Getting a job: While the relationship between employment and credit history might seem odd, according to credit card company, Capital One, more and more employers are looking at their applicant’s credit when it comes to hiring them. A good credit shows that the applicant is responsible and trustworthy – both qualities that employers are looking for.

Getting a car: Cars can be expensive, but they are often a necessity. A 2014 article in magazine, The Economist, quoted Experian, who said 85 percent of new and 54 percent of used cars in the U.S. are bought using auto loans. This makes it extremely likely that at some point you will apply for an auto loan. According to U.S. News, having a good credit score can lower the applicant’s financing rate or even reduce the price of your car.

Buying a house: While good credit has its share of short-term benefits, its long-term benefits are what makes credit worth it for students now. Big purchases such as buying a home 10-15 years down the road can become a lot more affordable with a good credit history. According to Capital One, good credit makes applicants eligible for a wider range of mortgage offers at lower interest rates. Put into perspective, according to Capital One, even a one or two percent decrease can save you tens of thousands of dollars over the life of the loan.

Maintaining good credit

The significance of credit is tremendous and the process of building credit can often seem daunting and confusing. Here are a few simple tips that you can start with to build yourself up to stronger credit. These tips are from Powercat Financial on their website, as well as from an article by Ann-Marie Murphy entitled “Secrets of the 800+ Credit Score Club:”

  • Start by requesting a credit report from one of the three nationwide credit reporting firms – TransUnion, Experian and Equifax. The report will require you to fill out a form that will require your social security number.
  • Ensure that your information is correct. If you find any incorrect information, report it immediately.
  • Always pay your bills on time.
  • Try not to use more than 30 percent of the limit of your credit card. A good rule to follow is to use your card to only pay for gas.
  • Pay off your credit card bills every month. Use a weekly or monthly budget to help you stay on top of your expenses.
  • Do not apply for credit you do not need. If you open an account, do so with an intention of leaving it open for a long time.
  • Refrain from closing long-standing credit accounts. Maintaining long standing accounts with good credit improves your credit score.
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