Importance of Good Credit

Credit reports typically include information such as the type of debts you have, current balances, payment performance, available credit, and a record of credit inquires in the past two years. Some negative credit information may remain on your credit report for up to 7 years; bankruptcy can remain for 10 years. Student loan default remains on your report for 7 years.

Credit scoring is a quick and consistent method of determining the likelihood that you will repay a future loan on time based on your past credit history. Some factors used to calculate your credit score can include promptness in paying bills, total credit limit, and the amount owed on accounts (particularly credit cards).

Although it is often a concern for student borrowers, having multiple student loans and/or a large amount of education debt does not necessarily mean you will have a poor credit score. How well you managed credit in the past is far more important.

For your information, some factors that can negatively affect your credit score are:

• Serious delinquency, derogatory public records, or collection accounts
• The proportion of balances to credit limits is too high
• The proportion of loan balances to loan amounts is too high
• Too many new accounts
• Too many accounts with balances
• Insufficient time since account was established
• Too many credit inquiries in the past 12 months
• Too many finance accounts

In addition to the credit score, lenders may establish other criteria to determine if credit should be extended to a prospective borrower.

These credit criteria, which may or may not be published by the lender, typically rely upon information supplied by the prospective borrower on his or her loan application, as well as upon data contained on the applicant's credit report. Examples include:

• Number of accounts rated 60 or more days delinquent
• Number of accounts that have been delinquent 90 or more days
• Declarations of bankruptcy
• Number of inquiries to an authorized credit reporting agency within a defined period of time