Credit management: a vital skill
Imagine graduating from college with a whopping $2,200 in credit card debt alone.
According to Nellie Mae, the nation’s largest maker of student loans, this is exactly what happens to the average undergraduate.
There are some students who actually drop out of college due to accumulating bad debt. Many students are under the impression that all they have to do is make the minimum payment on their bills.
In fact, by doing just that, it could take a student over 12 years and $1,115 in interest to pay off a credit card balance of $1,000 with an 18 percent interest rate.
The best way to avoid this is for students to try and have only one credit card, with a low credit limit, and pay off the balance habitually (www.bankrate.com).
On the bright side, huge credit card balances and student loans are not requirements for graduation. It is absolutely possible to graduate from college with little or no debt. One just has to be fully equipped with the right information.
According to David Sandor, Vice President at Visa USA, 54 percent of college students pay off their credit card balances monthly.
Not everyone is aware of what exactly a credit score is. “This is probably information that I should know, but I do not,” said Lawrence Brabble, Mesa Community College student.
According to Jennifer Culligan, credit scores are made up of 22 pieces of data collected from the three major credit bureaus: Equifax, Experian, and TransUnion. Each bureau submits an individual score. Usually, the median score will be used to determine creditworthiness.
There are five major categories used to establish credit scores: payment history (35 percent of the score), length of credit history (1 percent), new credit (10 percent), types of credit used (10 percent), and debt (30 percent) (www.youngmoney.com).
So, what makes a good credit score? “I know around the 500 area is not good, that’s about all,” said Spencer Williams, MCC student.
And he’s right.
Scores of 300-500 are signs of several late payments, accounts in collection, and other unpleasant information on the credit report.
Credit scores usually vary between 300 and 850, but only 13% of consumers score above 800. A score of 620-700 shows a decent history of payments made on time, while some late payments may have taken place. Scoring above 700 indicates responsible debt management.
Kimberly Lankford affirms that overdue library books, which may seem incredibly insignificant, can alter someone’s credit score.
According to her article “Boost Your Score,” many local governments hire collections agencies to track down money owed for items such as library fines. Library fines can lower credit scores by as much as 100 points, says Jennifer Culligan of youngmoney.com.
Bad credit is like a toothache; most people don’t think about it until there are consequences.
“Good credit is imperative to have if one plans to invest in anything. From houses, apartments, to even simple things like cell phones. Without good credit, a lot of these things are very hard to invest in, which could also affect your future in the short, and long runs,” added Spencer Williams.Fortunately, a bad credit score is not permanent. There ware ways to improve it. “Students can fix the credit scores by avoiding late payments on the existing credit accounts. One of the main causes of bad credit is late payments exceeding 60 to 180 days delinquent.
The more rebuilding time of consistent, timely payment history, the better the improvement outcome will be,” says Alan Bonner, assistant Vice President at Irwin Union Bank.
He also suggests before thinking about establishing credit, it is best to seek advice from family members, a local banker, or even a credit counselor.
“Good credit is extremely valuable. Maintaining a favorable credit score will result in interest rates on auto loans, mortgage loans, credit cards, etc. to be significantly lower; as opposed to an unfavorable credit score, where these interest rates will be significantly higher,” said Amber Washington, MCC student.
Establish good credit now by making payments on time instead of having to pay off years of debt after graduation. It’s much more worth it in the long run.
Volume
44, Issue 9. Today is
Illustration by Scott Seligman/Mesa Legend