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College is a great time to start building a credit history. Whether you have good credit, are looking for ways to improve it, or have no idea what a credit report is, understanding your score and how it’s used is essential to developing financial health. Here are some questions and answers to get you started.

Q. What’s a credit report?

Answer: A credit report is a compilation of your history with financial accounts, credit cards, and loans, as well as your bill-payment patterns. These factors are weighted in the following order of importance:

  • Timeliness of bill payment
  • Dollar amounts owed
  • Length of credit history
  • Variety in type of accounts
  • Number of recently opened credit accounts (including student loans)

Dr. Douglas Smith, a professor and director of the Center for Business and Industrial Studies at the University of Missouri in St. Louis, explains that the information in your credit report can directly affect your eligibility for different types of loans and on what terms (such as interest rate).

Your credit may be checked in any of these situations:

  • Buying a car or other big purchases
  • Applying for a credit card
  • Buying or renting a home
  • Getting a job

Q. How do I get my credit report, and how much does it cost?

Answer: Over half of the respondents to a recent Student Health 101 survey said they’ve requested their credit report.

You’re entitled to get your report from each of the three major credit-reporting agencies once a year, free of charge: Equifax, Experian, and TransUnion.

Learn more about these agencies

The Big Three (Credit-Reporting Agencies)

There are three main agencies that provide credit reports to lenders. You are entitled to free copies of your report—from from each of them—annually.

The agencies are:

These three companies have also teamed up to create AnnualCreditReport.com, a central source for retrieving all your free reports at one time. This Web site and its services are endorsed by the U.S. Consumer Financial Protection Bureau, which explains, “By requesting the reports at the same time, you can determine whether any of your files have errors. By requesting the reports separately, you can monitor your credit files more frequently throughout the year.”

More information.

Smith recommends checking your credit report at least annually to see what’s being reported to creditors, and more importantly, to ensure that everything is accurate. “Accounts that you don’t recognize, erroneous addresses or employment information, and inaccurate data should be reported to the credit bureaus right away,” he says.

One thing to note is that the free reports don’t indicate your credit score. There are many companies offering reports that do, including those listed above. But Vicki Jacobson, director of the Center for Excellence in Financial Counseling at the University of Missouri, warns that these have a cost. Companies may lure you in for a small fee and then enroll you in a subscription-based credit monitoring service (and charge you monthly).

If you do pay for a credit report, by law, companies can charge no more than $11.50 per report.

Q. How do I read a credit report?

Answer: In order to check for accuracy, carefully examine the following sections:

  • Name, birth date, addresses, and employers
  • History of banking and credit accounts, including historical balances and delinquencies
  • Collection activity
  • Inquiries (requests for the report)

Q. What’s “good” credit?

Answer: You don’t have to make a lot of money in order to have good credit. That’s because income isn’t included as part of your credit score.

You may have heard, however, that it’s good to have at least one credit card (and pay it in full each month) in order to build a credit history. Jacobson explains, “If you don’t have any outstanding credit, lenders might actually consider you a risk. They don’t know if you’re capable of paying your creditors back or not.”

A score of 720 or more is considered good and a score below 600 is considered poor. Smith says that generally speaking, “The higher the number, the lower a credit risk you are to a lender.”

Q. How can I build credit?

Answer: You can build credit and improve your score by:

  • Paying bills on time
  • Using different types of credit resources
  • Having a long track record with current creditors

Cindy S., a senior at the College of Mount St. Joseph in Cincinnati, Ohio, suggests, “Write down everything you spend, eliminate expenses that aren’t important, and apply that money to [paying off] credit cards or student loans.”

There are also options if you have little or no credit. Establishing credit can begin with simply opening one credit card, and using it to buy only gas or groceries every month—then paying it off in full. By limiting your purchases to one thing you would be buying (and can afford) anyway, you can keep your credit manageable and keep yourself debt-free.

Q: How long does it take to improve my score?

Answer: Information stays on your credit report for 7-10 years, including data about late payments and nonpayment. But you can start to rebuild your credit almost immediately by making on-time payments starting right now.

Your credit report is one indicator of your financial health. Just like other elements of wellness, gathering information and making conscientious decisions will help you reach your goals.

Take Action:

  • Get your free credit report at least annually from each of the three major credit-reporting agencies.
  • Review the reports carefully and dispute erroneous information.
  • Maintain a consistent credit history of on-time payments.
  • Be conscientious about opening new lines of credit and applying for loans.

Amanda is a recent graduate of at San Jose State University in California, where she majored in journalism and nutrition.

Information about handling mistakes on your report

How to Handle Errors

Q. What if there’s a mistake on my credit report?A. The most common credit report errors are in the following areas:
  • Number of active accounts
  • New accounts or those with non-zero balances
  • Length of credit history
  • Total outstanding balances
  • Number of accounts currently overdue
If you find an inaccuracy, write a letter of dispute to all three credit-reporting agencies. Transmitting information to them is voluntary on the part of creditors, so the reports might say different things.If you’re in the process of clearing up a discrepancy, or if you’ve been the victim of fraud, you have the right to include a 100-word statement on your credit report explaining the situation. The statement lasts for two years. You can also request that updated information be sent to anyone who requested your report in the previous six months.Here are more things you can do:
  • Contact the lender, employer, or other source of the erroneous information directly. Ask them to correct their records and update what they’ve reported to the credit-reporting agencies.
  • If you’re in the process of applying for a loan, let the lender know directly that you’re in the process of disputing something in your credit report.
  • Follow up to make sure the problem has been fixed. If you report an error, the agency must investigate and respond within 30 days.
  • Make sure to review everything at least annually and pay special attention to any problematic areas from the past.

Information on how your credit is evaluated

Credit Scoring

The most widely used scoring system used by lenders is that of Fair Isaac Corporation, or FICO®. According to Dr. Douglas Smith, a professor and director of the Center for Business and Industrial Studies at the University of Missouri in St. Louis, FICO tells potential lenders how likely it is that you would default on payment in the six-month period after receiving a loan. Although late payments and delinquencies on your credit can’t be wiped off your report, most negative information must be removed within 7-10 years, by law.

More Q&A about credit reports

More Credit Score Q&A

Q: Will repetitively checking my credit report harm my credit? I don’t want it to look suspicious.
A: You can check your credit report as an “administrative” query without hurting your credit score. But potential lenders also request reports each time you open a credit card or apply for a loan. Many inquiries made by potential lenders over a year’s time can lower your score.

Q: Will closing a credit card affect my score?
A: Yes and no. If you’re having difficulty paying your bills on time, it’s probably best to close the account. Ask the credit company to make note that it’s being closed at your request. Also make sure that’s reflected in your credit report.

On the other hand, the length of your credit history does account for about 15 percent of your entire credit score. You may want to keep open the credit card with which you have the longest and best on-time payment history.

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Amanda Holst is a recent graduate of at San Jose State University in California, where she majored in journalism and nutrition.