April 28, 2008
EFC's Financial Literacy Tip of the Week - Maintaining Good Credit
WASHINGTON, D.C., (April 28, 2008) – In support of National Financial Literacy Month, the Education Finance Council (EFC), an association of nonprofit and state-based student loan providers, is offering a “Financial Literacy Tip of the Week.” This week, EFC wants to remind people about the importance of maintaining good credit.
“Credit” is the ability to borrow money, typically from a bank or other financial institution. When used responsibly, credit is a valuable and convenient tool. Credit can be especially useful when financing “big ticket” items, such as a car, home or college education. However, when used carelessly, credit can be costly and may even limit the financial opportunities available to people in the future.
Before making a loan or giving credit, a bank or financial institution will attempt to determine someone’s “creditworthiness” – the likelihood the person will be able to pay back the money borrowed in a timely and responsible manner. In order to determine creditworthiness, financial institutions will access their credit report. A credit report includes personal information – such as an individual’s name, address and employer’s contact information – and details of something called “credit history.” Much like it sounds, a “credit history” is a record of information about every credit account an individual has ever applied for and/or opened, including the credit limit, outstanding balance and whether payments were made on time for each account.
To help financial institutions interpret credit reports quickly, a company called a “credit bureau” will analyze a person’s credit history and assign a “score.” The higher the credit score, the more likely the person is to be approved for credit or offered a favorable interest rate. Three national credit bureaus are authorized to review credit reports: Equifax, Experian and TransUnion.
A good credit score can save money; however, a low credit score can be improved in several ways, including:
• Making payments consistently and on time
• Gradually reduce the amount owed
• Paying off high interest debt first
• Consider paying more than the minimum payment required
While the misuse of credit can be costly, people should not be afraid of using it. Credit is a valuable tool that can help achieve a number of financial goals. Also, people should remember that it pays to be smart and take steps to protect their financial well-being. One way someone can protect their credit score is by monitoring their credit report. Federal law entitles people to a free copy of their credit report every year from each of the three credit bureaus. They can request their credit report from the individual bureaus or at www.annualcreditreport.com.
EFC’s members are committed to providing financial literacy education to students and families. This commitment was demonstrated last month with the launch of EFC’s “Educated Financial Choices . . . Start With You” financial literacy homepage, available at www.efc.org/finlit. Visitors to the homepage can access additional information on this week’s “Tip of the Week,” including a copy of “EFC’s Guide to Credit.” And all of EFC’s Financial Literacy “Tips of the Week” can be found in the EFC newsroom.
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EFC’s mission is making college more affordable. Together with its members, EFC works to expand access to higher education by ensuring the availability of student loan funds while striving to make paying for college easier and less expensive for all students and families. EFC represents nonprofit and state-based student loan providers that participate in the Federal Family Education Loan Program (FFELP) as well as affiliated entities including guaranty agencies, lenders, rating agencies, insurers and investment bankers.
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Financial Literacy Tip 4-28.pdf
EFC's Financial Literacy Tip of the Week - Maintaining Good Credit
WASHINGTON, D.C., (April 28, 2008) – In support of National Financial Literacy Month, the Education Finance Council (EFC), an association of nonprofit and state-based student loan providers, is offering a “Financial Literacy Tip of the Week.” This week, EFC wants to remind people about the importance of maintaining good credit.
“Credit” is the ability to borrow money, typically from a bank or other financial institution. When used responsibly, credit is a valuable and convenient tool. Credit can be especially useful when financing “big ticket” items, such as a car, home or college education. However, when used carelessly, credit can be costly and may even limit the financial opportunities available to people in the future.
Before making a loan or giving credit, a bank or financial institution will attempt to determine someone’s “creditworthiness” – the likelihood the person will be able to pay back the money borrowed in a timely and responsible manner. In order to determine creditworthiness, financial institutions will access their credit report. A credit report includes personal information – such as an individual’s name, address and employer’s contact information – and details of something called “credit history.” Much like it sounds, a “credit history” is a record of information about every credit account an individual has ever applied for and/or opened, including the credit limit, outstanding balance and whether payments were made on time for each account.
To help financial institutions interpret credit reports quickly, a company called a “credit bureau” will analyze a person’s credit history and assign a “score.” The higher the credit score, the more likely the person is to be approved for credit or offered a favorable interest rate. Three national credit bureaus are authorized to review credit reports: Equifax, Experian and TransUnion.
A good credit score can save money; however, a low credit score can be improved in several ways, including:
• Making payments consistently and on time
• Gradually reduce the amount owed
• Paying off high interest debt first
• Consider paying more than the minimum payment required
While the misuse of credit can be costly, people should not be afraid of using it. Credit is a valuable tool that can help achieve a number of financial goals. Also, people should remember that it pays to be smart and take steps to protect their financial well-being. One way someone can protect their credit score is by monitoring their credit report. Federal law entitles people to a free copy of their credit report every year from each of the three credit bureaus. They can request their credit report from the individual bureaus or at www.annualcreditreport.com.
EFC’s members are committed to providing financial literacy education to students and families. This commitment was demonstrated last month with the launch of EFC’s “Educated Financial Choices . . . Start With You” financial literacy homepage, available at www.efc.org/finlit. Visitors to the homepage can access additional information on this week’s “Tip of the Week,” including a copy of “EFC’s Guide to Credit.” And all of EFC’s Financial Literacy “Tips of the Week” can be found in the EFC newsroom.
________________________________________
EFC’s mission is making college more affordable. Together with its members, EFC works to expand access to higher education by ensuring the availability of student loan funds while striving to make paying for college easier and less expensive for all students and families. EFC represents nonprofit and state-based student loan providers that participate in the Federal Family Education Loan Program (FFELP) as well as affiliated entities including guaranty agencies, lenders, rating agencies, insurers and investment bankers.
# # #
Financial Literacy Tip 4-28.pdf
