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College of Human Ecology

Establishing good credit starts now

Thursday, April 28, 2005

MANHATTAN -- With diploma in hand, many college graduates feel they are set to conquer the world. They often mark their transition into the "real world" with a large purchase such as a car.

But those dreams of new wheels may stop short when the salesman checks their credit history.

Kansas State University professors Esther Maddux and John Grable said establishing good credit doesn't just start after graduation. According to cardratings.com, approximately 83 percent of all undergraduate students have at least one credit card.

A credit rating, which consists of all public records, debts and open accounts such as utility bills, is the key element in determining the amount of interest you will be paying on certain loans.

Having a good credit rating can be essential - even when applying for a job. In today's society, Grable, associate professor of family studies and human services, said it is not uncommon for employers to look at your credit report before hiring an employee. Although employers must have a valid reason, such as when hiring for a bank or other jobs dealing with money, many want to know if their employee has a history of poor money decisions.

Grable said consumers have the right to obtain a copy of their credit report. By September, anyone can request a free report from any of the following national credit reporting agencies: Experian, Equifax and Trans Union. Consumers in the Western states could order their free reports beginning Dec. 1, 2004. Consumers in the Midwestern states - including Kansas - could order their free reports beginning March 1, 2005.

"If a graduate is denied credit for any reason, people may request a free copy of their credit report to find out why," Grable said. "If there is a mistake, or if they would like to make a note to the file, they may do so for no cost."

To ensure a good credit history, Maddux, professor of family studies and human services, said consumers should make sure they have the ability to repay their credit card bills.

"People need to understand that if you don't have the capacity to repay a credit card bill today, then you are not likely going to have the capacity to repay it a month from now when the bill arrives," Maddux said. "So if you can't afford it today, what are you going to do to adjust your income and expenses so that you can afford it?"

Knowing the difference between gross and net income can also help clarify how much money can be spent. Maddux said people should base their lifestyles on the amount of money that they take home rather than the base amount.

"We all use credit for lots of different things that take more than the money we have to pay for right now - for emergencies and e-commerce," Maddux said. "But when using credit, the best strategy is to be in the position where you can pay in full within the grace period. If you can't afford that, pay as much over the minimum as you can because you are going to start building up interest costs."

Grable said credit users should always stay current on payments because late payments may work against you in a total credit rating. "People need to realize that credit is not free," Maddux said. "You are paying to use someone else's money and there is a cost to using it."

This article was posted on Thursday, April 28, 2005, and is filed under College News, Family Studies & Human Services.