As far as students are concerned, too often do they realize that they must start building credit and therefore apply for credit card after credit card, believing they are committing a harmless act. This is not the whole truth. A majority of students build their credit in this manner and rely on their high-paying, yet non-existent, post-graduate career to pay for it later. The problem turns out to be too much credit and not enough monetary resources. Unfortunately the world is a tough place and nothing is guaranteed, especially in today’s economy where a student is considered lucky if he or she lands a career in his or her field of study. Students who buy with credit and rely on paying everything off after graduation might find themselves in early financial turmoil.
So what is a credit report online and why is it so important? Everyone should know a credit report consists of past debts, payments, credit accounts, and any other financial activities made by a consumer. These activities are summed up into one “score,” which is essentially what lenders and creditors look for first when evaluating a person for credit approval. These scores, compiled by credit bureaus such as Equifax and TransUnion, can even determine a consumer’s interest rate and monthly payments on car purchases and mortgages for instance. To the average person, a credit report online can appear rather confusing and uninformative; to a lender, it reveals all.
There are five criteria creditors and lenders judge when approving a “new debt” or a new investment or loan. First, the rates at which bills are paid are reviewed. Here it is noted when late payments are made and how often late payments have occurred. Likewise, payments made on time are also reflected. Second, a lender will look at how much credit you have been approved for in the past, how much you owe on each account and for how much each account has approved you. The ratio of these two figures is very significant in determining a score. Maxed out cards are usually frowned upon.
Three-digit FICO credit scores can also be obtained online that indicate just how well one’s credit is managed. Higher scores mean a better credit rating. This score is what lenders look at first when they inquire on someone’s credit.
Another aspect of the credit report that is evaluated is the length of the credit’s history. In other words, more responsibility is given to those who have been dealing with credit longer. They also look at other new debts a consumer may be taking on as well. Checking out who else has been looking at your FICO score can also tell what other financial commitments are being made. More inquiries from credit lenders can be damaging, although inquiries made within two weeks of each other (like when shopping for a car, for instance) count as one inquiry.
The last portion examined on one’s credit report is the “credit mix”--what types of cards are being used and how many. Virtually all stores offer their own credit cards, which can be a good way for students to establish credit, but can also be somewhat addicting. Even applying for too many indicates a huge potential to get into trouble. For many, the confusion with credit begins with the idea that credit is a double-edge sword. In order for credit approval, one must have established a history of credit. Yet, too much credit can open doors for debt.
It is essential to understand how credit cards work and how the credit score works so you do not get far into debt. Some general tips that will help maintain a beneficial credit record are to pay bills on time, keep credit card balances low, make a conscious effort to pay down all debts, and to not open a bunch of cards that are not needed. Most importantly, however, consumers should check their credit report online often. It is possible for wrong information to appear on one’s credit report.
By Kelley Caner
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