A College Student s Guide to Credit

1. A College Student�s Guide to Credit Click the QUESTION to Learn More

2. For most students the goal is to have one credit card with a zero balance. To achieve this goal you need to know your credit card limits and stay within them. Look on the credit card statement to determine what your limits are. Consider using credit cards for emergency purposes and for school expenses like books, supplies and tuition. Use a debit card or cash for all your living expenses. Overspending on credit is tempting because you feel like you can afford more than you have. Leave your card at home if you are tempted to shop when your stressed, worried , unhappy or celebrating. Using Credit Wisely on a College Budget

3. Using Credit Wisely Tips Avoid late fees of as much as $30 by paying your credit card bill on time; putting it in the mail at least 10 days in advance of the due date. When you pay it off each month, you will not be charged interest charges. If you can�t pay it all off each month, pay more than the minimum payment to reduce your credit balance. Don�t get charged over the limit fees because you�ve over spent, pay attention to your balance; use online features of your account to keep track.

4. Why Is Establishing Good Credit Important? Most students are just starting to establish credit in their own name. So it is important to start small and use credit wisely so that as you leave college you have a strong record of responsible credit use. How is your credit use recorded? Your credit use is monitored and documented by credit reporting agencies or credit bureaus to create a credit history and a credit report that summarizes your credit performance. This credit report is important because it influences your future access to credit and the cost of that credit. Your credit history can be monitored by reviewing your credit report periodically but at least once a year.

5. Tips for Establishing Good Credit If you don�t bounce checks and keep a balance in your checking account, you show you can manage money well. Subscribing to your favorite magazine will start to establish credit in your name. Opening a credit card account, paying on time and not carrying high balances will establish good credit. Remember that utility bills, rent agreements, and cell phone contracts are all credit service agreements. Be sure to pay these bills on time too. Paying late will impact your credit score adversely. By staying within your credit card limits and paying on time, you establish yourself as a good credit risk. If you open an account and have a trusted parent or adult as a co-signer you will have access to credit because their credit score will be used to determine your credit worthiness. Don�t lend friends use your credit card, you will be responsible for any debt they create.

6. Shopping for a Credit Card Credit card companies love new college students. You will have lots of opportunities to open an account. You don�t have to choose the first one to come in the mail or is offered on campus. Rather you want to shop around based on these important criteria: Annual Percentage Rate (APR) - This is the annual percent of interest that will be used to determine your monthly finance charges. The lower the APR the better but don�t be fooled by the introductory rates. Find out what the APR will be after the introduction period is over (usually 6 months). Annual Fee - This is like a yearly membership fee; most students don�t need a card that has an annual fee. Charges for late payments, over-the-limit purchases, and cash advances � These are extra fees charged if you don�t follow the credit grantors limits set for you. As you compare charges, you want the lowest amounts available. Grace period - is the period of time in days that you have before interest charges start being charged on new purchases. Who is issuing the card - You want a card from a major credit grantor. Credit unions and banks and credit card companies offer credit cards. Shop around for the best rates and services. BankRate.com is one source of information but check your local financial institutions as well.

7. What is a Credit Report? Credit reports are created by credit bureau agencies that collect financial information about you. These reports are used by credit grantors like car dealers, credit card companies, mortgage companies and banks and others to determine your credit worthiness. Your credit worthiness is determined by your past use of credit. If you use credit wisely then you will be considered credit worthy. Your credit report is an important tool used by credit grantors to determine if they will loan you money. Your credit worthiness is measured by a credit score. It is very important to make sure your credit report is accurate before you submit a credit application; wrong information may reduce your score.

8. What�s Included In A Credit Report? Identifying Information Name Social Security Number Your Addresses (for 5 years) Your employers Public Records Tax Liens Bankruptcy Child Support Orders

9. How is Credit Report Information Used? Information stays on your credit report for 7 years or for 10 years if you file bankruptcy. If you have misused credit you will have a low credit score. The credit score is determined by a formula used by credit reporting agencies and credit grantors. Credit grantors, employers, landlords and insurance agencies review your credit report and your score to assess if you are a good credit risk. Organizations that review credit reports assume your use of credit illustrates your level of responsibility and risk taking behavior.

10. What Is A Credit Score and Why Is it Important? A credit score is number between the 300 and 850 that is a numerical representation of your credit history. A formula is used to establish this number. The higher the number the better the score. Your score is impacted by your payment history, how much debt you carry compared to your limits, and the total amount of debt you have. If you have good credit and a high score, then: You will pay less for borrowing money because creditors will offer you a lower interest rate. If you have poor credit and a low credit score, then: You will pay more for borrowing money because you will be paying a higher interest rate. You may not be able to rent, get utilities or credit put in your name. A potential employer may believe you are apt to be dishonest or unable to manage their resources well. An auto insurance agency will charge you more for your insurance policy.

11. Paying Down Your Debt It�s a good idea to pay your debt off each month. Paying more than the minimum payment will help reduce the balances and in the long run it will cost you less money in interest charges. Pay your bill early to reduce the finance charges each month and avoid paying late fees. If you get overwhelmed with debt, use the Power Pay plan to take control. You can use the worksheet or the online version.

12. What To Do If I�m In Trouble With Debt? If you are feeling stressed about your money and you can�t pay your bills on time, then it�s time to get control and pay off debt. Here�s how: 1) Create a budget to determine how much you can afford to pay toward debt. Click here for a sample budget sheet. 2) Contact your creditors immediately. 3) Explain why you are unable to pay. Most creditors are willing to work with you in developing a revised payment schedule to fit your circumstances. 4) Don�t promise to pay more than you can afford. 5) Do not ignore your creditors and your bills; by avoiding the creditors you are making your situation worse. 6) If you need help, contact the Consumer Credit Counseling Service of Maryland and Delaware (1-800- 642-2247)

13. What Happens If I Don�t Pay? Every creditor will try to collect the debt but each may be a little different in how and when they take action. Usually for up to 30-90 days they will send bills. They may charge you fees for late payments. If you do not pay, the creditor will report late payment to the credit bureau and begin to take the steps necessary to get the debt paid. If the debt is a mortgage or auto loan, then the loan is �secured� by these items. If you don�t pay, then the creditor can repossess or take back the item. The creditor will try to sell this asset usually for less than what you owe. You will be responsible for the difference between what you owed and what they sell it for. If the debt is unsecured like a credit card or a college loan, then the creditor has the right to take you to court and sue you to repay the debt. They may turn the debt over to a collection agency prior to taking you to court. All these actions will be reported on your credit report and impact your credit score negatively.

14. More Information And Resources Click the title of the document for a copy: Managing Credit Wisely for College Students Budget Sheet How Much Credit Can I Afford? It�s Worth Your Time To Review Your Credit Report Understanding Credit Scoring Self Help for Repairing Your Credit Report Paying Off My Debt For an online version of Power Pay click here For more financial management information from: University of Delaware Cooperative Extension The Federal Trade Commission MyMoney.gov Consumer Credit Counseling Service of Maryland and Delaware

15. University of Delaware Cooperative Extension This organization is an outreach branch of the University of Delaware. Our mission is to connect University resources, research and information to meet the needs of individuals, families, communities and agriculture. For more information about Cooperative Extension go to: http://ag.udel.edu/extension The information in this website was designed for educational purposes. It should not be substituted for legal advise. Seek professional assistance if need be. For questions about this site contact: Maria Pippidis, Extension Educator in Family and Consumer Sciences.