Extra Credit

So let me be VERY clear from the beginning: nothing in the process of qualifying for financial aid (specifically grants, scholarships, or work awards) have anything to do with your or your parents’ credit history. When it comes to qualifying for these types of financial aid, we don’t care if your parents have declared bankruptcy, if there is a 90 day delinquency in payment in your past, or if you have a tax lien.

BUT… your credit history is really important for lots of other reasons (including some student and parent loans, qualifying for some jobs, renting an apartment, buying a car, or qualifying for a credit card…). So we are going to spend some time talking about credit.

Who wants extra credit?

I am going to begin this week with an assumption that you may know nothing about credit or your credit history. What is a credit history? And where does it come from?

Your credit history shows a record of your payment of loan or debt obligations. Whenever you take on a debt, an entry is made in your credit history showing how much you borrowed, your current balance, and your history of payments. There are three main credit bureaus (organizations that track your credit history). Each company has a slightly different way of reporting your history, and while generally banks and lenders report your information to all three of the bureaus, they may have different reporting schedules (and some lenders may not report to all three companies).

The three major credit bureaus in the US are Equifax, Experian, and TransUnion. While there are not worldwide credit bureaus, other countries around the world have their own companies providing credit history.

Every consumer is allowed for free – once a year – to obtain a copy of their credit history from the three bureaus. This site allows you to receive them. You can also obtain a copy for free if you are declined credit, or you can pay the three bureaus to have regular access to your credit history.

While you can get a copy of your history for free from the bureaus, you are never able to get a copy of your credit score for free. What is a credit score? In 1989, the credit score was introduced as a way to provide an easy way to measure an individual’s creditworthiness. The credit score is a three digit number (usually from 300 to 850) with the higher the number representing a more creditworthy individual.

Whether or not you qualify for a loan can be based on your credit score. Your interest rate, how many months you are allowed to repay your loan, any fees you are charged, all can be based on your credit score. Your credit score is an important indicator of how much you will spend on credit.

You can pay to get access to your credit score, or (better yet) you can get a copy of your free annual credit bureau report (CBR) and make sure the information is correct. You can dispute information that is wrong on your CBR, and the credit bureaus are required to correct any errors.

So we are going to spend a lot more time this month talking about credit — how credit impacts loans, how to improve your credit score, and how credit cards work (among other personal loans).

But for now I have an extra credit assignment for you! Was this information helpful? What didn’t we cover about credit that you want to know? What questions do you have about credit that I can answer?