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« BACK TO FINANCIAL AID HANDBOOK 2014– 2015 MAIN PAGE

Mission Statement

Chapter 1

Chapter 2

Chapter 3
Chapter 4
Chapter 5
Chapter 6
Chapter 7
Chapter 8
Chapter 9
Chapter 10
Chapter 11
Chapter 12

FINANCIAL AID PUBLICATIONS

STUDENT FINANCIAL AID HANDBOOK

2014– 2015

 

Chapter Ten

YOU AND YOUR CREDIT

Eligibility for Graduate Plus, Parent Plus and other private educational loan programs that are utilized by students is based upon credit worthiness. A credit score is used to initially determine the general status of an applicant’s credit history and used in conjunction with the review of the credit report.

As such, the following list represents a GENERAL example of credit criteria that have been used by the majority of private lending programs to establish one’s eligibility for a private loan. We strongly recommend to each prospective borrower that you contact the appropriate national credit bureau for your area of the country and request a copy of a current credit report before applying for financial aid. Erroneous data or “bad” credit issues can be addressed immediately and will likely prevent delays in loan approval.

CREDIT CRITERIA

There are many credit reporting agencies or credit bureaus, who rate the credit reports for judging the creditworthiness of consumers. Usually, a credit report contains information regarding the borrower's credit history, payment history, and regularity of payments, credit account inquiries, social security number, contact address, and details of the credit account.

The credit rating criteria may differ from one credit account to another. Credit report rating is done to check whether the loan amount can be paid back by the borrower.

There are many factors affecting credit rating. Once the credit report rating has been carried out, it generates a result, which is in the form of a numerical value. This score determines whether an individual is eligible for a loan, employment, or lower interest rates.

There are five factors affecting credit rating or credit rating criteria followed by the various credit rating agencies.   They are summarized as follows:

  • History of payments made: One of the credit rating criteria is the payment history.  Every credit rating has a score. History of payments made, encompasses 35% of the rating score.  In the event there are late payments or the credit report has registered delinquent payments this is recorded in the credit report.  The report also has details of bankruptcy, if applicable.
  • Amount outstanding: 30% of the credit score evaluates the outstanding debt amount.  This is also one of the credit rating criteria for generating the score.  When the outstanding amount is close to the amount of credit limit, this can negatively affect the score.
  • Duration of credit history: 15% of the credit score relates to the duration of the credit history.  If the duration of a particular credit account is long and if the credit account is held with one particular financial service institution, this can have a positive effect on the credit score.
  • Types of credit used: The type of loan availed by a consumer is one of the credit rating criteria.  If an individual has availed a loan from a finance company, this affects the score in a negative manner.  10% of the credit rating score is based on these credit rating criteria.
  • Credit account inquiries: Opening several new credit accounts is a negative qualification on the consumer's part.  10% of the score is determined by these credit rating criteria.
  • If the credit report has a negative scoring, one can opt for credit report repair by adopting several means.   The FCRA or the Fair Credit Reporting Act has made it obligatory for the important credit bureaus to furnish details of yours credit report once a year.   By reviewing credit report scores, one can be prevented from the hassles of debt settlement and declaring bankruptcy. Keeping a track of the score is vital for maintaining a good credit history.

KEY WORDS

CREDIT

The granting of a loan and the creation of debt.  It is a form of deferred payment.

CREDIT SCORE

A credit score is a numerical expression based on a statistical analysis of a person's credit files, to represent the creditworthiness of that person.   A credit score is primarily based on credit report information typically sourced from credit bureaus.

CREDIT HISTORY

A record of an individual's past borrowing and repaying behavior.   It will list personal information such as: number and types of credit accounts, how long each account has been open, amounts owed, amount of available credit used, whether bills are paid on time, and number of recent credit inquiries.  It also contains information regarding whether the consumer has any bankruptcies, liens, judgments or collections.  This information is all contained on a consumer's credit report.

CREDIT WORTHINESS

An assessment of the likelihood that a borrower will default on their debt obligations.  It is based upon factors, such as their history of repayment and their credit score.  Lending institutions also consider the availability of assets and extent of liabilities to determine the probability of default.

CREDIT REPORT

Your credit report has information that affects whether you can get a loan — and how much you will have to pay to borrow money. You want a copy of your credit report to:

  • make sure the information is accurate, complete, and up-to-date before you apply for a any loan.  
  • help guard against identity theft.  That’s when someone uses your personal information — like your name, your Social Security number, or your credit card number — to commit fraud. Identity thieves may use your information to open a new credit card account in your name. Then, when they don’t pay the bills, the delinquent account is reported on your credit report. Inaccurate information like that could affect your ability to get credit, insurance, or even a job. The burden of proof is on you to correct these errors even though you may not be the one that incurred the debt.

CREDIT BUREAU

A credit bureau or consumer reporting agency is a company that collects information from various sources and provides consumer credit information on individual consumers for a variety of uses. It is an organization providing information on individuals' borrowing and bill paying habits.  Most U.S. consumer credit information is collected and kept by the three national credit reporting agencies: Equifax, TransUnion, Experian.

The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months.  This free credit file can be requested through www.annualcreditreport.com, by phone or by mail.

The three nationwide consumer reporting companies have set up a central website, a toll-free telephone number, and a mailing address through which you can order your free annual report.

You can order your free annual credit report online at annualcreditreport.com, by calling 1-877-322-8228, or by completing the Annual Credit Report Request Form and mailing it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

When you order, you need to provide your name, address, Social Security number, and date of birth. To verify your identity, you may need to provide some information that only you would know, like the amount of your monthly mortgage payment.

You must have an Adobe viewer to download the request form. Download the free Adobe viewer

 

 

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