Editor's note: We want to take some time to talk about one of your most important financial assets: your credit. Over the next few days, Barbara, Kathy, and our newest blogger Cheryl will be dissecting credit — why it's important, how you monitor it, and what you can do to build or fix it.
Imagine this summer. You've snagged a great internship or your first job out of college, and you're looking for a place to hang your hat after work. You find a great apartment, fill out the lease application and start thinking about how to decorate your pad. Then you get the call from the apartment's manager. Unfortunately, she says, you don't have good enough credit to live there.
Gasp! Turns out those late payments to your utility companies and spring break costs still sitting on the credit card can affect you more than you'd thought.
Your credit can affect more than just your financial life. 
It's true that landlords may check your credit before allowing you to rent an apartment. Your prospective employer may look at your credit to see if you are responsible. You may even find that your credit is examined in determining your auto insurance.
And obviously, the big reason you need to be concerned with your credit situation is so you're able to secure some credit down the road! Whether you're borrowing for a car, your education, or everyday purchases through a credit card, a good credit history is key. For a little more insight into what lenders are looking for consider the "5 Cs" of credit, from the Hands on Banking® program :
- Character: When lenders evaluate character, they look at stability — for example, how long you've lived at your current address, how long you've been in your current job, and whether you have a good record of paying your bills on time and in full.
- Capacity: This refers to considering your other debts and expenses when determining your ability to repay the loan. Creditors evaluate your debt-to-income ratio, that is, how much you owe compared to how much you earn. The lower your ratio, the more confident creditors will be in your capacity to repay the money you borrow.
- Capital: This refers to your net worth — the value of your assets minus your liabilities. In simple terms, how much you own (for example, car, real estate, cash, and investments) minus how much you owe.
- Collateral: This refers to any asset of a borrower (for example, a home) that a lender has the right to take ownership of and use to pay the debt if the borrower is unable to make the loan payments as agreed. Some lenders may require a guarantee in addition to collateral. A guarantee means that another person signs a document promising to repay the loan if you can't.
- Conditions: Lenders consider a number of outside circumstances that may affect the borrower's financial situation and ability to repay, for example what's happening in the local economy.
If you don't have the greatest credit (or don't even know what your credit situation looks like), don't fret: Now is the perfect time to explore your credit.
We'll show you how to get a good picture of where you stand on the credit spectrum and what you could do to help your cause. And if there's something you definitely want to know more about when it comes to credit let us know.
Hello WF! I've been a WF customer for many years now. I'm so happy to see WF has moved to having such a strong presence online!
Anyhow, I am in the process of opening up a new chapter in my life...medical school! I am very excited to start, however, I've been going over all the numbers (ie. tuition, student loans, living expenses & credit card debt) and realize I will owe a good chunk of change when I complete my medical education.
My question is, what can I do now and while in med school to maintain a good credit line?
Thanks,
Student DocKR
Hi Student DocKR! Congrats on your decision to go to medical school! We've got some tips coming up later this week to wrap up our series on credit so be on the lookout for that, but in the meantime here are a few pointers for someone in your situation. One of the best things you can do to build and maintain your credit is to pay your bills on time. Check out Cheryl's post from yesterday to see how much on-time payments count when it comes to calculating your credit score. Next, don't borrow more than you need. The more money you borrow, the higher your debt to income ratio. So if you can get by taking out less in student loans or charging less to your credit card, do it. Make sure you're taking advantage of all the grants and scholarships you can find to reduce the total amount you'll have to borrow. You may even be able to find some assistantship position to help defray your costs. And if possible, consider making payments toward the interest your student loans will be accruing while you are in school. This can save you money in the long run because that any interest that isn't paid will be capitalized (added to the principal balance) and begin to earn interest of its own once you enter repayment. Those are just a few basics, be sure to check my posts later this week for more ideas.