Making Cents of: Your credit score

Strapped for cash? It’s probably easy to just put that double cheeseburger on a credit card. But that 99 cents can add up for us struggling college students and could eventually affect our ability to buy the soccer-mom minivan we might need 10 years from now.

Many students don’t believe that the debt they have today will affect their ability to buy a house or a car in the future. According to a 2005 Credit-ED Harris Interactive Financial Literacy Survey, 52 percent of students believe their spending habits now will not impact their future credit report.

Fact is, your credit report will be a factor in any big purchase you make, today and 10 years from now. It’s like a creditors’ gossip column of your spending habits. Are you late on your payments? How free are you with your spending on credit? All of these juicy details are found on your credit report, which determines your credit score.

Your credit score also affects the interest rate you would receive on a car loan or home mortgage. While you might be approved for the loan, a less than great credit score can equal high interest rates.

So, what exactly goes into your credit score? Credit history is the most essential factor. With no credit history, you have no credit score. It’s important to establish credit with either credit cards or loans, and now is the time.

However, don’t go crazy with those credit card applications that are a daily occurrence in your mailbox. Opening unnecessary, new credit cards will lower your credit score, but according to the Credit-ED survey, 38 percent of college students don’t think so.

Payment history can also affect your score. If you’re late on your payments or don’t pay at all, lenders will consider you a risky investment.

Maxed out credit cards can have a negative affect on your credit score. Lenders look at the available credit you have to hypothesize about how much debt you may have in the future.

A good rule is to keep your credit card debt less than 50 percent of your available credit. For example, if your available credit is $1,500, don’t go over $750. However, the average college student has $2,200 in credit card debt, according to Nellie Mae, a student loan provider.

The type of credit card you have can also lower your score. Be careful about signing up for secured credit, which requires you to pay your credit card balance in full each month. Lenders may consider you a risk since you can’t manage payments on your own.

It’s important to know your credit score now, before you go to buy a house or a new car. It takes time to change your habits and repair your mistakes.

Instant, “free” credit reports are available all over the Internet. While they may give you a free credit report, these Web sites probably won’t give you what you really want to know, your credit score, for free. Some sites will give you a free report, but you have to sign up for a trial service that you’d have to cancel later on.

Research a few sites and compare prices. Rather than ordering a pizza or buying a new CD, use your next $10 or $15 to get your credit report and score at a reputable site. It’ll be an investment in your future.

Sara Bahnson
Columnist

Related Posts:

1. Build credit without using credit cards
2. Making Cents of: Buying a used car
3. The consequences of credit
4. College students learn ins, outs of personal finance
5. Consequences of credit: Part 2