Financial Literacy Q & A with UGA College Students - Part I

On Tuesday, Oct 27, I was a guest lecturer at the University of Georgia in Athens, Georgia. The students submitted some fantastic questions, which I share with you. Enjoy!!

Q: How do you get a credit report? What is it exactly?

www.annualcreditreport.com or at each of the individual credit bureau websites. It’s a record of your credit, collection, and public record experiences.

Q: How do you read a credit report? How do you know your credit report includes everything?

There is no guarantee that it includes everything. It’s a voluntary system and has gaps. They all come with legends that will help you read and interpret what the entries mean.

Q: How do you improve a bad credit score? How long does it take to fix a low credit score?

Each low score is low for a reason. Missed payments, too much debt, and excessive applications are some of these causes. Identify WHY your score is too low and stop doing those things. Low scores caused by debt can be improved simply by paying it down, so it’s very fast. Low scores caused by negative info take longer to improve because there’s no way to net out the damage quickly. It takes time. Remember what I said in the class: 7-10 years.

Q: How long does it take to get a credit report fixed if you have been a victim of identity theft? How does it affect employment, buying a home, etc.?

You would think that it shouldn’t take long to correct after ID theft, but it does. The credit bureaus are inefficient and bogged down with consumer disputes. It’s much easier to NOT become a victim by taking some simple precautions. Data that’s on your files because of ID theft can hurt your job and home applications just like legitimate negative data. Credit scores don’t separate it out. The credit bureaus have to get it corrected or it will haunt you. 

Q: What are ways to build your credit without creating more debt for yourself?

You can certainly open credit cards and never use them. That’s building credit without getting into debt. 

Q: Can late payments on utilities affect your credit score?

Not right away. I assume you’re asking because you have a roomie who pays late. Utility companies don’t generally report to the credit bureaus unless the account goes significantly delinquent. Then they’ll hire a collection agency to collect it and that’s when it will show up on your credit reports… for the next 7 years.

Q: Should you close or keep open credit cards after you cut them up? Does checking your credit hurt your credit score?

Keep them open. You checking your own credit does not hurt your scores.

Q: If a person has several credit cards, does it hurt their credit more than if they have one, even if they are in good standing (making payments on time) for all of the cards? If so, does it hurt the person if they close the cards they aren’t using?

It’s better to have many versus a few. Don’t close them. Use them all periodically for small stuff (gas, socks, dinner) and then pay them off. This will ensure the credit card issuer doesn’t close them because of inactivity.

Q: How should you use multiple credit cards to raise your credit report/score?

Keep your utilization to no higher than 10 percent. That’s the balance divided by the credit limit. That should never go above 10 percent if you’re in the market to finance something. Plus it acts as a safety net to keep you out of credit card debt.

Q: How does having no credit history affect potential employment? Does your credit score go down when a potential employer checks your credit history?

Second question first: No, an employer looking at your credit report does not lower your score because you’re not applying for a loan. Employers recognize that new grads aren’t going to have a long credit history. That’s not a secret. On the plus side… you also won’t have all of the debt and garbage that generally concerns them either.

Q: What is a good credit score?

My favorite question. A good credit score is whatever score gets your approved at the best deals a lender has to offer. For some that’s a 700. For others that’s 750. I closed on a loan in 2008 and the lender told me that I had to have a 780 to get the best rate. It varies by lender, but if you can get to 750+ then you’ll be fine.

I hope you enjoyed the first round of questions.  Stay tuned for tomorrow's post, where I'll share the remainder of the questions!

John Ulzheimer – Credit scoring and credit reporting expert and author, John is the President of Consumer Education for Credit.com. Formerly with Equifax and Fair Isaac, John shares his unique insight of the inner workings of credit scoring models and the credit reporting industry on CreditBloggers.com.