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A Strong Gpa Is Good, But Fico Is Great: Case For Credit Card Education For College Students

Mar 25, 2008
At Junior credit cards, we believe credit is such an important issue that depending on how you manage it, it can make or break your financial life. To make credit work for you, it is essential that you understand your own credit and what your credit information says about you to the growing number of companies that use credit information to make life impacting decisions about you. These companies include lenders, insurance companies, employers and utility companies. The objective is to help you better understand and, therefore, leverage your credit history in order to get the most out of this essential force throughout your life.

Benefits and hazards of credit cards

Student Credit cards enable online purchases, from text books to concert tickets, make it possible to rent a car, and help with medical emergencies or vehicle breakdowns. Used wisely, credit cards can be helpful throughout college, and can assist you in the development of financial management skills. Also it is vital to know that your credit score affects your ability to get, car loans, and home mortgages after graduation. Future jobs and insurance premiums can also be influenced by your credit score. By paying your bills in full or in a timely manner, a credit card will help you establish a good credit score.

Late payment or no payment will earn you a poor credit score. With a poor score, you find it difficult to make important purchases like your first car or that condo, if you get the loan; it will be at very high cost. Also it is important to know that Banks make money by charging annual fees, late payment penalties and interest fees on unpaid credit card balances. Therefore, card holders with revolving debt (those who do not pay their balances in full each month) are desirable to the bank.

Understanding your credit report

Your credit report or credit history is a record of your past and current credit obligations including your debts and payment history. Your credit reports, widely recognized as the official record of how you shop for and manage credit obligations, are maintained by three national credit reporting agencies, or credit bureaus: TransUnion, Equifax, and Experian.

Information reported on your credit report

Your credit reports contain a detailed record of your accounts and payments to banks, credit unions, finance companies, mortgage companies, credit card companies, retail stores, and a variety of other creditors. These trade lines detail your account and payment history, balances, credit limits, debt burden, and the age of your accounts.

The report also includes inquiries or authorized credit checks. An inquiry is a posting on your credit report that occurs whenever it has been accessed. Each credit reporting agency is legally obligated to maintain a complete record of all inquiries for, in most cases, 24 months. This record can be as simple as who pulled your credit report and on what date. Credit related public records including bankruptcies, judgments and tax liens will also be found on your credit report.

The credit report also include your personal data, this includes your name (including previous names and any variations of your name that are reported by your lenders), telephone number, address, Social Security Number, birth date, and current employer. Typically, previous addresses and employers are noted as well. This information, for the most part, is used for nothing more than identification.

Information not reported on a student credit report

Your credit report does not include your level of education, your medical history, purchases paid by cash or check, your gender, national origin, race, or religion, your investments or brokerage accounts, your income and your alimony commitments.

Who decides what goes in your student credit report?

Information on your credit reports does not actually originate with the credit bureaus at all. In reality, the credit bureaus function more like warehouses: they store data, which is reported to them from a variety of sources including your mortgage and auto lenders, credit card issuers, student loan companies, public record vendors, retail stores and finance companies.

Understanding your credit score

Credit scores are generated from models that read the data from your credit reports to generate a three digit number ranging from 300 to 850. The resulting credit score is designed to assess your level of credit risk by predicting whether or not you will pay back credit obligations in a timely manner. Despite the fact that anyone can build a credit scoring model, the industry standard is the FICO credit score.

Note also that at any specific moment, the information at each of the three credit bureaus is likely to differ, due to different reporting schedules. As a result, the FICO scores generated from the three credit bureaus will also differ. Since lenders may review your FICO score and credit report from any one or all three credit bureaus, it's a good idea to verify that the information in all three credit reports is accurate so to ensure a valid score.

It is important to realize that your credit scores are in constant flux, changing each time information changes, is added to or deleted from your credit reports. Making a mortgage payment, applying for a department store credit card and opening a new line of credit will all trigger changes in your credit report and, as such, a change in your credit score. A late payment or the closure of a credit card account will also have an immediate impact to your credit score.

The following categories drive your FICO credit score:

*Your payment performance history (35%)
*Your current level of indebtedness (30%)
*The age of your credit history (15%)
*Your pursuit of new credit (10%)
*The type of accounts in your credit report (10%)

As you can see, payment performance and level of debt account for 65% of the points in your FICO score. The remaining categories are worth fewer points but are still very important especially for those who are aiming to earn the highest scores.

Taking Control of your credit

Your credit record stays with you wherever you go. Future loans, credit card accounts, employment, and housing, they all require clean credit. To create good credit and maintain it you need to actively manage your credit accounts.

Study your card agreement

Note the grace period, annual fees, cash advance fees, finance charges, and annual percentage rate (APR). If you plan to carry a balance on your account, shop around for a lower APR, even if it means paying a higher annual cardholder fee.

Use credit wisely

Keep track of your current purchases. Avoid large impulse purchases. Do not use a cash advance to cover normal daily expenses.

Know your limit

Exceeding your credit limit is usually considered a violation of your account agreement and may result in additional fees or penalties, or the freezing or cancellation of your account.

Make more than the minimum payment

If you can not pay off your total balance each month, then at the very least, try to pay more than the minimum required

Pay on time

Be sure to get your payment in by the due date to avoid a late fee and possible credit damage.

Keep in touch

If you change your name, address, or job, notify your lending institution immediately. You do not want to risk a late payment. Also contact your lender if you cannot make a payment on your account for any reason. They might be able to arrange special payment options that help you avoid credit problems.

Enroll in a personal finance course

If you are not a finance or business major you should enroll in a personal finance class as soon as your schedule allows. If it is not required coursework, take it as an elective. You will learn a set of life skills that will not only help you right now, but also after college and for the rest of your life.

Lovemore Ncube
About the Author
I have years of experience as a Financial Advisor. I graduated with significant balances on my credit cards; it took me a while to put my credit on track. If I new then what I know now about credit cards, I could have done a lot better. Website: http://www.juniorcreditcards.com
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