Credit - The Good, the Bad, and the Ugly

What is "credit" and what is your "credit score"? Why are they important?

Credit is the ability of a customer to obtain goods or services before payment, based on the trust that payment will be made in the future. Your credit score summarizes how well you’ve utilized and handled debt (or the credit offered to you). Your credit score affects many areas of your life, some that you may not have even thought about! For example, your credit score can affect whether or not you’re eligible for future credit. You may not be able to take out a loan or open up a new credit card if you have a bad credit score. But your credit score can also determine whether or not you get a job, since many employers will check it before hiring. Or a potential landlord might check your credit before allowing you to sign a lease. Your credit score can positively or negatively affect interest rates on future loans. Finally, insurance rates might be higher with bad credit, or the company might just deny you insurance altogether. Credit is important and having a good (or bad) credit score can significantly affect many areas of your life.

We live in a world of credit cards, and there are a lot of people out there that either love it, or hate it. We're here to give you the full scoop. To learn more about the importance and the dangers of credit, drop by the $avvy $eawolf $eries "Credit... The Good, The Bad, & The Ugly" workshop. There's free pizza, and a chance to win sizable UAA Administration Scholarships for participation that's right, discounts from the cash you pay to go to school!

Common Credit Myths

Tips to Improve Your Credit!

  • Pay down any balances you currently have.
  • Don’t open up new credit cards or new forms of credit.
  • Keep old credit cards open (if no annual fee), since length of account improves score.
  • Use one card (preferably with a low APR) to make most purchases, rather than carrying a small balance on many cards.
  • If you have no credit, open up a secure credit card with your bank or credit union, or ask a friend or family member to co-sign on a card with you.
  • In the age of the internet, keep your identity safe! Beware of any emails or calls asking you to give out personal information, especially your social security number, and change your online account passwords often.
  • Try to keep your usage below 30% of your maximum available credit limit.

What Makes Up My Credit Score?

Your credit score is a number calculated based on your credit history. The FICO score is the most commonly used credit score in the United States, and made up of:

  • 35% Payment History
  • 30% Amount Owed
  • 15% Length of Credit History
  • 10% New Credit
  • 10% Types of Credit Used
Pie chart showing 35% payment history, 30% amount owed, 15% length of credit history, 10% new credit and 10% types of credit

How Can I Get a Free Credit Report?

To request a free credit report, go to, or call 1-800-322-8228. This is the only authorized free online credit report on the internet. You can also go directly to credit reporting agencies like Equifax, Experian, or TransUnion, but you may be charged.

The Cost of Paying the Minimum

Just Paying Your Minimum Monthly Payment on a $2500 balance? Check out what it could cost you*:

  Monthly Payment Time Period of Repayment Interest Paid Total Amount You'll Actually Pay
Minimum payment $35.00 179 months $3,793.07 $6,293.07
Paying $25 more than your minimum payment $60.00 59 months $1,053.42 $3,553.42
What you save by paying $25 extra each month   120 months of payments! $2739.65 of interest!  

*actual amounts will vary depending on interest rates.

Protect Your Identity!

Here are 10 tips to protect your identity:

  1. Don't give out your Social Security number unless you are absolutely certain what it will be used for.
  2. Do not carry your Social Security card or birth certificate.
  3. Never give out personal information on the phone to anyone if they initiated the call. If you're uncertain, hang up and call the company's headquarters.
  4. Examine your financial statements to ensure all charges are yours.
  5. Shred unneeded documents that contain personal and/or financial information.
  6. Immediately report lost or stolen credit cards.
  7. Keep ATM/debit card receipts. Don't just leave them behind.
  8. Keep important documents in a secure place. Keep it secret, keep it safe.
  9. Protect all your passwords. Don't carry them with you.
  10. Beware of emails asking you to verify persona information.

If you think you might be the victim of identity theft:

  • Contact the fraud department of any of the consumer reporting companies to place a fraud report on your credit report.
  • Close the accounts that may have been tampered with or opened fraudulently.
  • File a report with your local police and with police in the community where the theft took place.
  • File your complaint with the Federal Trade Commission.

Important Vocabulary

Annual Fees:

Fees you must pay once per year for use of the card.

Annual Percentage Rate (APR):

The interest rate charged on credit card balances expressed in a standardized, annualized way. It is applied each month that an outstanding balance is present. There are different types of APRs:

  • Fixed APR

    This rate does not change for at least a year, then can be raised with 45 days’ notice from the credit card company.
  • Variable APR

    • This rate changes according to your index interest rate (usually tied to the prime rate which moves with the interest rate set by the Federal Reserve).
  • Introductory APR

    • Low rate offered as an incentive to apply for the card. This rate will increase after the introductory period is over (at least 6 months but varies by card).
  • Default APR

    • Also called the “Penalty Rate”, this is the rate your interest will increase to if you are more than a certain number of days late (usually around 60) in paying your minimum monthly payments.

Credit Bureau:

A company that catalogs and sells information regarding the payment behavior of consumers, and issues credit reports with related information. Also called a “credit reporting agency.”

Credit Score:

A three digit number ranging from 300-800 that summarizes how well a person or business has utilized and handled debt. Higher numbers are better and can qualify you for larger loans at better rates.

Finance Charges:

The amount added when you do not pay the monthly statement balance in full. The charges vary depending on the amount owed and the interest rate.

Grace Period:

The time during which you are allowed to pay your credit card bill without having to pay interest, usually applying only to new purchases. This period of time (at least 21 days but varies by card) occurs between the close of your monthly billing cycle and when the minimum monthly payment is due.

Late Payment Charge:

This is a fee charged to borrowers who miss paying at least the minimum monthly payment by the payment deadline. Late payments can negatively affect your credit history.

Minimum Monthly Payment:

The smallest payment you can make towards your unpaid balance to remain in good standing with the credit card company. Making the minimum monthly payment on time will avoid late fees and positively affect your repayment history on your credit report. The amount of the minimum monthly payment is calculated as a small percentage of your total credit balance and you can find this on your monthly statement.