Loans Blog Series: Part 2- Credit Scores

credit-scoreBy: Margaret Mitschke*

As a university student, credit scores can already begin to affect how you will be able to finance purchases in the future. Many things, including student loans, apartment leasing, car payments, mortgages, insurance, and even employers can look at credit score to screen candidates. If your credit score is too low, then you are considered high risk. This can result in more fees, higher interest rates, and possibly being turned down for loans, insurance, apartments, and jobs. So what exactly makes up your credit score, and what can you do to make sure that it is not too low?

Bankrate divides a credit score report into five main parts. The first is your payment history. This makes up 35 percent of your score, and includes how often your pay your bills on time. The second section is amounts owed. This makes up 30 percent, and means how close you are to the limits on your credit lines you use. The third section is the length of your credit history, which is 15 percent of your score. The fourth section is new credit. At 10 percent, this category takes into account any applications you have recently put in for new credit. This includes inquiries, applying for in-store credit, or other inquiries between 14 and 45 days ago. The last category is the types of credit you are using, and is also 10 percent. If you have more diversified credit lines, such as revolving credit or installment credit, then your score will generally be higher. Despite all of the different components that make up a credit score, it may not change quickly. Generally, it takes time for changes in credit scores to be recorded and make a difference in a credit report.

So what exactly is a good credit score, and how can you find out your score? The most commonly used credit score is the FICO score. The scale for the FICO score ranges from 300 to 850. While a lower score indicates a higher risk, and a higher score indicates a lower risk, the Student Money Management Center on SHSU’s campus recommends trying to get a score of at least 760. The SMMC also lists the following three credit bureaus where you can request an annual free copy of your credit report:

You can also obtain a free report at annualcreditreport.com

The Student Money Management Center has several tips and videos about how to improve your score, or keep a good credit score. These include:

  • Start off with only one credit card;
  • Use only a small amount of your available credit (optimally, use less than 30 percent of your limit);
  • Only charge what you can afford to pay back;
  • Do not max out your credit card;
  • Pay your balance in full and on time;
  • Pay bills like rent, utilities, and all other bills on time;
  • If you have to carry a balance, pay more than the minimum balance required; and
  • Check your credit report regularly.

To protect consumers, the Federal Trade Commission describes the protections outlined in the Fair Credit Reporting Act, including:

  • One free credit report each year from each of the three nationwide consumer reporting agencies;
  • A number of consumers can use tonotify credit reporting agencies of identity theft;
  • A process for consumers to dispute information in their credit reports that they believe is inaccurate or incomplete; and
  • Requiring creditors to give consumers their credit reports and scores if they were used in denying credit or taking other adverse action against them.

The Student Money Management Center is located in the Estill Building on campus in Suite 228. They have walk in hours from 9:00am-11:00am, and from 2:00pm-4:00pm. They are also available by appointment Monday through Friday from 8:00am-5:00pm at (936) 294-2600, or at smmc@shsu.edu.

If you have questions about your credit report, including improper information on your report, make an appointment to see your full-time, on campus attorney to see how to dispute any wrong information on your report. Please feel free to contact us and make an appointment at (936) 294-1717, or go online at http://www.shsu.edu/legalservice to schedule a free consultation.

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