Your Credit

Good credit is necessary not only to secure private educational loans (such as the Grad PLUS) but also to obtain a car loan, a mortgage, or a credit card.  Your student loans are reported to the three national credit agencies. It is important to understand that if you are late in filing a deferment or late in making a payment, your delinquency will be reported.

How to I obtain a credit report?
Consumers have the opportunity to receive free credit reports once a year from the Annual Credit Report Request Service. This is the only centralized credit reporting service authorized by Equifax, Experian and TransUnion to provide free credit reports.  Don’t confuse this program with the many paid services available to consumers to monitor your credit, or the now antiquated services that provide you with credit reports from all three agencies at one “low price.” 

You can go online to request, view, and print all three free credit reports:
www.annualcreditreport.com

FICO Fundamentals
(from The Money Book for the Young, Fabulous, & Broke by Suze Ormzan © 2005)

A FICO score is a three-digit number that determines the interest rate you will pay on your credit cards, car loan, and home mortgage, as well as whether you will be able to get a cell phone or have your application for a rental apartment accepted. FICO stands for Fair Isaac Corporation, the firm that created the formula that seems to lord over your financial life. The way the business world sees it, your FICO score is a great tool to size up how good you will be at handling a new loan or credit card, or whether you’re a solid citizen to rent an apartment to. A high FICO score gives you a great reputation with the business world; you’ll get the best deals. A lower FICO score translates into paying higher interest rates on cards and loans.  Your credit history can even affect your auto insurance premiums or your ability to get that job you applied for. I wasn’t kidding when I said it was connected to just about every part of your life.

Fair Isaac uses a formula to come up with a score for you that can range from 300 to 850. Anything between 300 and 500 means you are a toxic financial risk and you are going to be hard-pressed to find any business that will want to work with you.  Scores between 500 and 850 are sliced and diced to fall into six ranges; the exact cutoffs for those ranges can vary from lender to lender, but typically this is what you may encounter.

 The range your score falls into ultimately determines the interest rate that you will pay on loans. Other factors, such as your employment history and salary, will affect the deal you get, but your FICO score is a major component in determining the interest rate you will end up paying for a home mortgage or car loan. 

How will consolidation impact my credit rating?
Your new consolidation loan will be reported to the credit agencies. It is important that you verify that your credit report was correctly updated. The loans you consolidated should show a $0 balance, as these loans were paid off by your consolidation loan.  If the credit report does not show a $0 balance, it will appear that you have double the amount of student loans. Your total debt burden is a part of your overall credit rating, and therefore this mistake could impact your credit score.

What should I do if there is an error on my credit report?
If you find an error on your credit report, you should contact the appropriate credit agency directly:

Equifax	(800) 685-1111	www.equifax.com
Experian	(888) 397-3742	www.experian.com
TransUnion	(800) 888-4213	www.transunion.com

It is important to note that the three major credit bureaus do not cross verify their information. If one credit bureau contains errors - the other two may or may not contain errors, or they may contain entirely different errors. Submitting a dispute to one credit bureau does not take care of errors reported by the other two. To cover every base, you should get copies of all three credit reports, and dispute each one separately.

If you report an error to any of the credit agencies, they are required to investigate and respond to you within 30-45 days.  You should also contact the company or lender who reported the erroneous information to the credit agency. 

How to Improve Your Fico Score (from www.myfico.com)

Payment History Tips

• Pay your bills on time.
  Delinquent payments and collections can have a major negative impact on your score.
   
• If you have missed payments, get current and stay current.
  The longer you pay your bills on time, the better your score.
   
• Be aware that paying off a collection account will not remove it from your credit report.
  It will stay on your report for seven years.
   
• If you are having trouble making ends meet, contact your creditors or see a legitimate credit counselor.
  This won't improve your score immediately, but if you can begin to manage your credit and pay on time, your score will get better over time.

Amounts Owed Tips

• Keep balances low on credit cards and other “revolving credit”.
  High outstanding debt can affect a score.
   
• Pay off debt rather than moving it around.
  The most effective way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount but having fewer open accounts may lower your score.
   
• Don't close unused credit cards as a short-term strategy to raise your score.
   
• Don't open a number of new credit cards that you don't need, just to increase your available credit.
  This approach could backfire and actually lower score.

Length of Credit History Tips

• If you have been managing credit for a short time, don't open a lot of new accounts too rapidly.
  New accounts will lower your average account age, which will have a larger effect on your score if you don't have a lot of other credit information. Also, rapid account buildup can look risky if you are a new credit user.

New Credit Tips

• Do your rate shopping for a given loan within a focused period of time.
  FICO® scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.
   
• Re-establish your credit history if you have had problems.
  Opening new accounts responsibly and paying them off on time will raise your score in the long term.
   
• Note that it's OK to request and check your own credit report.
  This won't affect your score, as long as you order your credit report directly from the credit reporting agency or through an organization authorized to provide credit reports to consumers.

Types of Credit Use Tips

• Apply for and open new credit accounts only as needed.
  Don't open accounts just to have a better credit mix - it probably won't raise your score.
   
• Have credit cards - but manage them responsibly.
  In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
   
• Note that closing an account doesn't make it go away.
  A closed account will still show up on your credit report, and may be considered by the score.

More Credit Information:

Learn How a Credit is Scored

Read the FTC’s Website on Credit

Fighting Back Against Identity Theft

Contact the Financial Aid Office:     (847) 578-3217