Managing Your Credit: MWU Financial Aid

Credit Tips for Borrowers

The Fair Credit Reporting Act lists a consumer report as " any written, oral, or other communication of any information by a consumer reporting agency bearing on a consumer's credit worthiness, credit standing, credit capacity, character, general reputation, personal characteristics, or mode of living which is used or expected to be used or collected in whole or in part for the purpose of serving as a factor in establishing the consumer's eligibility for credit or insurance to be used primarily for personal, family, or household purposes; employment purposes; or any other purpose authorized under section 604 [§ 1681b]."  (From § 603. Definitions; rules of construction [15 U.S.C. § 1681a])

It is important to emphasize that there is no quick fix to raise your credit score at any given time.  The best advice is to manage your credit wisely over time.

Managing Your Credit History

  1. Understand how much you are able to manage. Do not open unnecessary credit. If you establish a budget and stick with it, you can avoid unnecessary financial burdens. Regularly evaluate and monitor your budget. Reduce your credit card debt and your reliance on credit cards while you are in school. If you do have credit cards, keep the amount of cards you hold and their balances to a minimum.
    2. You should have no more than two credit cards, with balances no more than one third of the available credit.
  2. Know what you are getting into. Understand the terms and conditions of any credit obligation you commit yourself to. There will be many details in your terms and conditions that creditors will not necessarily tell you such as: annual fees, fees for cash advances, different interest rates for different types of credit (i.e. cash advance, new purchases), interest rate increases over a period of time or because of delinquency, account maintenance fees, and balance forward fees.
  3. Know what you owe. Things can get out of hand if you do not keep a good record of what debts you owe. A record includes: the name of the company, current outstanding balance, monthly payment amount, and due dates.
  4. Maintain detailed payment information. Sometimes your credit data is not updated accordingly. Keep clear financial records that include: copies of applications and promissory notes, statements, terms and conditions, disclosure notices, and any correspondence from your creditors. This will help you to resolve any disputes you may have with your credit history.
  5. Check your credit report annually. All consumers are eligible to receive a FREE credit report from each of the three credit reporting agencies (see link below). Check for any accounts that have mistakenly been added to your credit history (accounts with similar names or social security numbers) or credit card fraud. Don't wait to find out when you try to buy a big ticket item such as a home or car. If anyone gains access to your social security number, they can use it to open credit card balances that you are unaware of. If you check your credit often, you can catch mistakes or fraud before it gets too late.
  6. Be mindful of credit inquiries. Inquiries that you make on your credit do not affect your credit history, but other individuals/companies that access your credit, affect your history negatively. Beware of businesses that may review your credit without your consent: car dealerships, apartment complexes, and life insurance companies. Excessive credit inquiries can distort a creditor's perception of your financial well being. Therefore, keep credit inquiries to a minimum - no more than 4 or 5 in a year.
  7. Pay your bills on time. The most important thing you can do to manage your debt is to pay it off accordingly. This will help you to avoid adverse credit reporting by your creditors, late fees, and a back up of payments. Consider setting up automatic payments if you tend to forget when your payments are due, or changing your payment due dates so that all of your bills are due at the same time.
  8. Take responsibility of your debt. You created this debt - be responsible enough to pay it back! A common misconception about credit is that your creditors created the debt for you. You alone signed the promissory note, or filled out the credit application.
  9. Recognize when you need help. You don't have to wait until you run into problems to receive counsel. Often times, when making everyday financial decisions, you are not sure of the impact it may have on your credit, if any. If you are unable to make your monthly payments on time, contact your creditors immediately. They may be able to refinance your debt or defer your payments while you are under financial hardship. Credit counselors are also available to help you deal with unmanageable debt. Hiding from your creditors will not solve the problem!
  10. Stay educated about credit. Creditors must follow the guidelines listed in the Fair Credit Reporting Act. Take time to learn what it means, how it affects you, and for how long.

Links for Additional Resources

Free Credit Report
Equifax
Experian
Trans Union
MY FICO
Federal Trade Commission
Consumer Information Center
Federal Reserve
National Foundation for Credit Counceling
Debt Counselors of America
Debt Advice - NFCC