Youthful credit missteps can haunt you later

I don’t want to date myself, but when I went to college, tuition was much more affordable and it was nearly impossible for students to qualify for credit cards and car loans. What hasn’t changed since then, however, is that many young adults still don’t realize the impact a few bounced checks or late payments can have on their future ability to borrow money, rent an apartment or even get a job.

It probably doesn’t help that four-fifths of high school seniors are not required to pass a personal financial management class in order to graduate, or that they’ll likely be deluged with loan offers upon graduating. Before they know what hit them, many people enter their twenties saddled with thousands of dollars of debt, mounting student loans and a damaged credit rating that can take years to fix.

Fortunately, many resources are available to help guide students – and their parents – through these temptations and lay the groundwork for a solid financial future. For example, the JumpStart Coalition is a not-for-profit organization whose goal is to improve the personal financial literacy of students from kindergarten through college. JumpStart offers a personal finance clearinghouse of more than 580 books, pamphlets, DVDs and other materials on financial literacy topics (www.jumpstartclearinghouse.org).

Another helpful program is What’s My Score (www.whatsmyscore.org), which is geared toward helping college students understand their credit scores and take control of their financial future. Originally developed by the Responsible Credit Partnership of the Saint Paul Foundation, What’s My Score (www.whatsmyscore.com) was recently acquired by Visa Inc.

Among the many topics What’s My Score explores are:

The importance of establishing a responsible credit history. Creditors, lenders, employers, and even landlords can use your credit score to determine whether to give you credit, loans, a job, or an apartment.

How credit scores are determined. Financial institutions, like banks and credit card issuers, supply information to credit bureaus on your financial performance history, which they in turn use to calculate your credit score. Lenders and others use that information to determine your financial reliability, which impacts your interest rates and ability to get a loan.

Common credit myths, such as: Closing old accounts will always improve your credit score (sometimes the reverse is true); paying off a negative record will remove it from your credit report (negative records such as late payments may remain for seven to10 years after they are first posted); and poor credit scores will be with you forever (if you continue to make payments on time and pay down debt, your score will steadily improve over time).

Ways to improve your credit score. These include establishing a pattern of responsible credit behavior, such as paying bills on time, making more than the minimum payment, paying off long-term debts, not opening too many new accounts, paying off credit card debt rather than moving it to new cards, keeping credit balances low relative to available credit, and reviewing your credit reports regularly to spot and correct any errors.

Cautions about the harmful effects identity theft can have on your credit are also discussed.

If you arm yourself and your kids with this valuable information, hopefully the only thing they’ll need to worry about for now is their grades.