Editor’s note: due to the holiday weekend, this “Money Monday” is appearing on a Tuesday.
Like most students, you probably spend the majority of your time focusing on school and exams. You may have heard the term “credit score,” but do you know what the term really means and how it could impact your future?
The term “credit score” may seem daunting; you may even be afraid to inquire about yours. Perhaps there was a bill that you did not pay on time last year or a student loan that you deferred.
While using too much credit can have a negative impact on your financial well-being, good credit can have a very good impact. Your credit score is the singular most important factor when you apply for a loan to purchase a home, a car or even a dental practice. So, it is imperative that you aim to have a good credit score. The credit score most widely recognized is your FICO score and the information on your credit reports is used to determine your credit score. Your credit score is based upon several factors, including:
1) Payment history;
2) Length of credit history;
3) Types of credit; and
4) Amounts owed.
Your credit score tells a potential lender how risky you are as a borrower. If your credit score is higher, you are likely to receive better rates and terms when you apply for a loan. Therefore, to build credit, it is important to not only have a credit history (in the shape of open credit cards and loans), but to make timely and full payments on all of your credit/loan accounts. It is also crucial that you do not use all of the credit line available to you (i.e. do not “max out” your credit card).
Everyone has the right to get their credit report one time per year for free from each of three services: Experian, Transunion and Equifax.You can also purchase your credit score, but you do not need to do this every time you check your credit report. Go to www.annualcreditreport.com to get your free reports.
Because you get three free reports each year, you might get one credit report from one of the three services approximately every four months. Save a copy of the report for your reference. You will want to look for items such as “Potentially Negative Information” on these reports to see whether there is anything that is incorrect or could harm your credit-worthiness. Be aware that the three reporting services may have slightly different information. So, it is especially important to look at all three over the course of a year.
In addition, you should purchase your credit score at least six months prior to any major purchases because it can take this long to process any changes or make corrections to any incorrect reports.
Have you researched your credit history yet? Will you in the New Year?
Free Credit Reports: www.annualcreditreport.com
FICO score: www.myfico.com
~Megan Hille, Esq., Pesavento & Pesavento, Ltd.