Students struggle to achieve good credit

editCreditcardphotoBy Sarah Teeple
Sun Star Contributor

Credit. In 2009, it’s more valuable than gold, and college students are discovering that, these days, it’s even harder to find.

The Alaska Student Loan Corporation recently implemented a minimum credit score of 680 as a requirement to get a state supplemental education loan. The supplemental loans, which pay for educational expenses other than tuition, are crucial for many students whose course load prevents them from working while attending school. The minimum credit score requirement disqualified nearly half the applicants for the loan this fall.

I am 19 years old and have never owned a credit card. I’ve taken out $4,000 in student loans in a two-year period. This week, I set out to find how to bring my credit score up from zero to 680. I talked to students, staff and faculty, and got some good advice.

“It takes time to get a 680,” said Craig Wisen, a finance professor and faculty advisor for the Student Investment Fund.

“A lot of people don’t realize, but a score of 500 instead of 680 is a big deal. It will come back and bite you when you go out to buy a house.”

Having good credit isn’t just important for buying a house. According to Wisen, potential employers sometimes run a credit check to evaluate your ability to manage money and the rate of your auto insurance premium can depend as much on your credit score as on your driving record. “The better your credit, the lower the premium,” he said.

To get there, Wisen recommends developing a payment history by paying bills on time and managing credit cards. “Don’t max out your credit limit,” he said. He stressed the importance of maintaining a zero balance whenever possible. “From a financial perspective, paying interest rates is the worst investment.”

UAF junior Amanda Burns knows how bad of an investment it can be.

“When I started going to the University of South Carolina, I was 17, and had never been away from home,” she began. “On campus, there would be tables set up with free stuff if you applied for a credit card, so that’s how I got my first couple of cards. One time it was a Slinky… it’s kind of embarrassing.”

She had five credit cards and no job. It wasn’t long before she was in trouble.

At the end of the school year, she told her parents she was going to join the Army to get out of debt. They wanted her to finish her education so they paid off her bills and she went back to school. But the following year, Burns was back in debt. “I found that I had purchasing power without money. So I told my parents I was joining the Army. This time, they were like, ‘Fine, go… whatever.’”

In the Army, Burns moved around so much that the bills didn’t find her regularly, and when they did, she wouldn’t open them. “They weren’t telling me anything I didn’t already know, so I would shred them or throw them away unopened. I felt hopeless.” It wasn’t until 2007 that she was able to pay off her debt. “One $500 card ended up costing $1,700 after late fees and interest,” she said.

Burns now owns just one credit card, and in the last two years her credit has gone from 450 to nearly 700. She talks openly about her past credit troubles. “I hate to see people go down that path and there is more awareness now.”

But having a credit card, and using it sensibly, is a way for a student to establish credit, so what is the best card to get?

According to Ashley Munro, financial aid advisor at UAF, “there is no ‘best’ credit card for students. Each individual student will need to shop around and find a card or company that best fits their needs or situation.”

Craig Wisen said that it’s important to establish a credit rating over a long period of time with a single lender. “You can’t do that if you’re always switching to another card for new benefits,” he said. He recommends sticking with a maximum of two credit cards, and estimates a student like myself could get to a 680 in two or three years with regular use and payments.

Thomas Fatica, a senior in Finance Management, chooses to live life simply and pay for his purchases with cash and debit. “I have a pretty good credit score… I’ve had car loans in the past, two credit cards, and have paid off my student loans.” He cited the main reason for dropping them as not wanting to pay interest. “I got myself into a little trouble, spending a little more than I had,” he said. “At one point I owed $1,000, and ended up paying $1,150 when it was all said and done.”

Fatica was lucky to have such a small debt to repay.

According to Sallie Mae, a company that specializes in providing federal and private student loans, the average college student has a credit debt of over $3,000 and that number increases with the number of years enrolled. According to government figures, student borrowing is on the rise. As tuition increases, so does the difficulty of obtaining private loans.

Munro feels that student loans can help build credit. “Regular, on-time payments of student loans are reported to the credit bureau, which is then reflected in a credit report and score.” She feels that paying loans back gradually while still enrolled reduces future interest as well as the total amount owed.

I have not yet begun making payments on my subsidized loan, which went directly to UAF for tuition and fees. My non-resident tuition is about three times more expensive than resident rates, and without scholarships and grants, I could easily be $15,000 in debt.

A website that you can use to view your credit history is www.annualcreditreport.com. “You’d be amazed at how much data they have on you. It’s free to look at once a year and lets you examine your credit history,” said Wisen. He pointed out that the website can be a useful tool in finding out if there are any errors hurting your score, and said students should contact one of the three main credit bureaus – Experian, TransUnion, and Equifax – if they find false information on their record.

Munro said that the most important tool students can use to stay on track with their credit score is budgeting, and recommends the Financial $ense Program, sponsored by the Financial Aid Office. “We offer a workshop on understanding credit, but we are not equipped to help students raise their credit scores,” she said. “We would highly encourage students to contact their lender or a guarantee agency to speak with an agent on an individual basis.”

Wisen encouraged students to enroll in Personal Finance, BA254, to learn more about how to build credit.

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