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])
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
- 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 number of cards you hold and the amount of their balances to a minimum. You should have no more than two credit cards, with balances no more than one third of the available credit.
- Know what you are getting into. Understand the terms and conditions of any credit obligation for which you make a commitment. Details in your terms and conditions that creditors will not necessarily tell you about include 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.
- Know what you owe. Things can get out of hand if you do not keep a good record of the debts you owe. A record includes the name of the company, current outstanding balance, monthly payment amount, and due dates.
- Maintain detailed payment information. Sometimes your credit data is not updated properly. 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 regarding your credit history.
- Check your credit report annually. All consumers are eligible to receive a FREE credit report from each of the three credit reporting agencies (Equifax, Experian, TransUnion — links 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 discover this information 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 you are unaware of. If you check your credit often, you can catch mistakes or fraud before it's too late.
- Be mindful of credit inquiries. Inquiries 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 four or five within a year.
- Pay your bills on time. The most important thing you can do to manage your debt is to pay it off in a timely manner. This will help you avoid adverse credit reporting by your creditors, late fees, and a backlog of payments. Consider setting up automatic payments if you tend to forget when your payments are due, or change your payment due dates so all of your bills are due at the same time.
- 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.
- Recognize when you need help. You don't have to wait until you run into problems to get financial counseling. Often, when making everyday financial decisions, you may not know the impact 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!
- 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.