Student Loan Repayment Checklist

It may be a few years away, but getting organized now will help you when it comes time to start repaying your student loans.

1. Make sure your loan companies have your latest address. Many people accidentally miss payments because they don’t get their bill.
2. Consider making your payments automatic debits. Many loan providers offer slightly lower interest rates for auto payers. Keep close track of your account balance so that automatic debits don’t encounter insufficient funds.
3. If you have the ability to do so, pay off your highest-rate student loans first.
4. Consider student loan consolidation if you have numerous loans and can lower your average interest rate and monthly payment by consolidating.

Bad Credit: So What?

Not paying your bills on time can have a devastating effect on your credit score which, as you’ve read, means paying higher interest rates on credit card balances, auto loans and student loans. Here’s a list of other areas affected by a poor credit score.

• Insurance rates: bad credit buys you significantly higher premiums for the same policy
• Employment prospects: employers regularly check prospective hires’ credit score as a sign of responsibility
• Apartments: Landlords use the credit score as one of their number one criteria for assessing the worthiness of a potential credit. Having a weak score could cost you a great living space.
• Debt and Your Military Security Clearance: Poor finances (low credit score, default accounts) now account for the leading cause of security clearance loss.

Protecting Your Rep

Imagine your roommate, who you’ve known for less than a month, asks to borrow $20 from you. What information would you want to know before loaning the money? If your friend had a history of always making good on his promises, you might feel reassured and loan the money. However, if you knew that he had already taken multiple loans from other people, none of which he’d paid back, you may think twice before handing over the money.

A credit history and score is not much different than this. It is your borrowing track record. A credit history helps lenders assess risk when examining your candidacy for a loan. There is not just one credit score. Numerous companies produce credit scores based on their own scoring models (Fair Issac, Experian, TransUnion, to name a few). Therefore, you cannot compare scores across the board.

In order to have a strong credit history and high credit score, we recommend the following:

• ALWAYS make on-time payments. Your ability to make on-time payments is the single most important factor in maintaining a favorable credit score.
• Try to limit your credit card usage to 50% of your available balance. This means if you have an available balance of $1000, try to use only $500. The more you use, the lower your credit score will be. Think about it. If your friend had 5 credit cards and they were all maxed out, you might assume that he had a problem paying back the money he owed.
• Try to limit the number of credit cards you have opened. Maintaining 20 credit lines at once is a bad sign to creditors, especially when they all have balances. It’s better to nurture a few lines of credit over time, than continually seek new credit.
• Finally, a portion of your score is based on how long you’ve had your accounts. It is better to have a few accounts for years, even decades, than to be constantly opening and closing credit accounts.

Checking Your Credit

You are ultimately responsible for the accuracy of your credit report, so it is important that you check yours at least once a year.

You are entitled to one free credit report each year from each of the three major credit reporting bureaus: Experian Inc., Equifax and TransUnion LLC. These three bureaus are separate companies and do not share information with each other, so each credit report may be somewhat different – you should check all three. You can request them via the Internet at www.annualcreditreport.com.

Remember, credit bureaus are required by law to explain information in your credit report that you do not understand. The credit bureau that supplied the report is required to answer your questions by telephone. Call during off-peak hours for faster service.

Common Errors – And What to Do About Them

Credit reports often contain mistakes, which could hurt your credit rating and mean you’ll pay higher interest rates, more points on a home mortgage or even be denied credit. While credit bureaus are legally responsible for reporting accurate information, you must bring any errors to their attention.

Common errors include:

• Accounts that are not yours
• Lawsuits or public actions in which you are not involved
• Incorrect account histories (saying you were late when you actually made payments on time)
• Incorrect name, address, phone number, or Social Security number
• Accounts listed as a “charge off” (debt that was written off and never paid) that you actually paid in full
• Accounts that were the sole responsibility of a divorced spouse (not a joint account)

There is a big difference between incorrect information and negative information. As long as negative information is accurate, it will remain on your credit report. Beware of “credit repair” companies that make misleading promises to “clean up” credit reports or erase bad credit.

To dispute incorrect information, you must send a letter to the credit bureau that clearly explains the error. Include photocopies of supporting documentation. Once the credit bureau receives your request, it has 30 days to investigate it and respond to you.

Here are some more tips for solving credit report problems:

• To contest an inaccurate entry on your credit report, contact the appropriate creditor/ company in writing and send it “return receipt requested.”
• Keep all your original documents, especially receipts, sales slips, and billing statements. You will need them to substantiate your dispute. Send copies only. It may take more than one letter to correct problems.
• Be skeptical of businesses that offer instant solutions to credit problems. There is nothing that a credit repair company can do for you – for a fee – that you cannot do for yourself for little or no cost.