The Importance of Building and Keeping Good Credit
If you are like most students during dental school, you will
take out student loans and charge purchases on credit cards. When
you apply for GradPLUS or private/alternative student loans or for
other credit, your credit file will be examined, and you will be
assigned a credit score based on information provided by credit
There are three kinds of loan approval tests widely
credit-blind (no checking at
credit-ready (no credit bureau file
exists with any payment history);
and credit-worthy (a file exists with
one or more good reports and minimal bad reports).
The borrower or co-signer, if needed, may have to also meet a
debt-to-income ratio and other lender requirements.
A credit score is a number that indicates how likely you are to
repay a loan or debt from a credit card purchase. While it is only
one piece of information lenders use when evaluating your loan
application, it may be the basis for approval or rejection.
Credit bureaus and credit reporting agencies provide credit
information to banks and businesses to help them decide whether to
issue a loan or extend credit. This information includes your
payment habits, number of current and past credit accounts, balance
of those accounts, place of employment, length of employment,
records of financial transactions, your payment history, and a
history of past credit problems. People who make all their payments
on time are considered good credit risks. People who are frequently
delinquent in making their payments are considered bad credit
risks. Defaulting on a loan can negatively affect your credit
With the exception of the GradPLUS loan, your credit rating is
not checked for eligibility for federal student loan programs, but
approval for private loans and some institutional loans may depend
on your credit history. Students who have defaulted on previous
federal educational loans may be required to agree to repay the
loan and begin making payments before they can become eligible for
further federal aid.
The Fair Credit Reporting Act and the Equal Credit Opportunity
Act help ensure that lenders rely on "likelihood of repayment" as
their chief criterion when granting credit. Scoring models do not
consider race, gender, nationality, religion; whether you are
married, single, or divorced, or other prohibited factors. For more
information about credit scores visit, www.myFICO.com.
Checking Your Credit Record
All U.S. consumers are eligible to obtain a free copy of their
credit report through the only authorized site, www.AnnualCreditReport.com.
You should obtain a copy of your credit reports annually from the
three major credit bureaus to make sure there are no errors. The
majority of credit bureau information is accurate, but you have the
right to examine your file and to explain or correct the
information it contains. Errors could affect both your credit
rating and your credit score. Annual review of your credit record
is also a good way to monitor identity theft.
Credit Counseling Service, 866-889-9347, offers free or
low-cost debt and credit counseling.
Cautions about Credit Cards
If you are like most students, you've received numerous credit
card offers promising low interest rates and credit lines of
several thousand dollars. If you have accepted these offers and
presently carry a balance on one or more such credit cards, you
should carefully examine your card use. Although having a credit
card is beneficial, problems can arise when you don't pay the bills
on time and begin carrying a balance that can balloon into a
mountain of debt.
Here are some helpful hints on using credit
- Before you buy an item, evaluate whether you really need it; if
not, don't buy it.
- If you make a purchase with a credit card, pay the balance in
full at the end of the month. Don't carry balances. Some cards
charge 20% or more in interest (usually called finance charges on
- If you accumulate credit card debt, you may want to transfer
debt from high-interest cards to lower-rate cards.
- Read your statements carefully and call the company right away
if you have questions, about a charge.
- Avoid taking cash advances. The finance charge on a cash
advance often starts applying the moment you receive it, not after
the next statement closing.
- Be aware of annual fees. Many companies charge $25 and more for
the privilege of using their card.
- Be aware of introductory offers. Usually low interest rates
are offered in the beginning, only to increase dramatically after
the introductory period expires.
(Back toFinancing a Dental Education)