• Debt, Credit Scores, and Reports

    Develop a healthy debt attitude

    There is a debt epidemic in the United States right now-Americans have $2.4 trillion in outstanding consumer debt

    • In our society, debt is a socially taboo topic, but many people struggle with debt, and report high levels of stress because of it
    • Students should consider asking parents about experiences with debt

    Before assuming that going into debt is necessary, it is important to evaluate the necessity, rationale, and alignment to personal values (see video on main financial literacy page)
    Credit cards can be both good and bad.

    • It is important to know what to look for when opening a credit card account, including
      • Interest rates
      • Hidden fees and introductory features
      • Rewards

    Credit cards are useful in building a good credit history.

    • They can help build good credit if you charge small amounts and pay off the balance monthly

    Credit cards are dangerous when they’re used to make purchases you cannot afford

    • Number 1 Most Important Rule:  Pay off your credit card in full every month. Translation: Don’t use it to buy anything that you don’t have the money in the bank to pay for.
    • Be careful! Credit card interest can compound far more rapidly than other types of loan interest.

    People use loans for various reasons, and debt is not inherently bad, as long as you have a solid plan for repayment in place.  Some good reasons to borrow include:

    • Education
    • Buy a new car
    • Start a business
    • Purchase a home (mortgage loan)
    • Personal/lifestyle loans

    Before purchasing an item on credit (by way of taking on debt), consider the real cost, accounting for interest paid over time.

    Your credit score (“credit GPA”) matters and can be improved and damaged

    • Higher = better
    • Also known as FICO score
    • What goes into a FICO score?
      •     -35% payment history
      •     -30% amounts owed
      •     -15% length of credit history
      •     -10% new credit
      •     -10% types of credit used

    For further information on the considerations and descriptions of these categories visit:           

    Why does it matter?

    • -When borrowing money, it can affect your interest rate, which can translate into thousands of dollars paid in interest over time.
    • -Employers may check it as a measure of responsibility before hiring you.
    • -Landlords may check it in deciding whether they’re comfortable renting an apartment to you.
    • -Insurance agencies can check it when determining whether they’ll insure you and what your rates will be.

    Go to http://www.myfico.com/CreditEducation/ImproveYourScore.aspx for tips on how to build or repair a credit score

    Your credit report (“credit transcript”) should be checked regularly (for free!)

    Learn what goes into your credit report

    • Identifying information
    • Credit history: all the different credit accounts you have ever had, whether open or    closed, and information about how responsible you were with payments, etc.
    • Credit inquiries: information about who has pulled your credit report.
    • Public record and collection items (like bankruptcy).

    Check it regularly because it could have errors.

    • It is common for there to be errors that are negatively affecting your credit score and report.
    • Make sure it is accurate and updated
    • You can check it for free three times a year at: www.annualcreditreport.com you are eligible to receive one free report a year from each of the three reporting agencies
    • Watch out for hidden fees with other free credit report/score offers (as seen on T.V.)