Student Loan Dodgers

A recent study by GfK Roper Public Affairs and Media shows that 35% of Americans admit to carrying a balance on their credit cards, while studies by the Federal Reserve board and data released by credit card companies show that the actual number is nearly 50%.

A study by the Consumer Federation of America and Washington Mutual Bank showed that 66% of its 1,000 respondents carried a balance on at least one credit card. The CFA/WaMu study also showed that less than one-third of Americans understand the meaning of a credit score; fewer than 3 in 10 respondents knew that a credit score of at least 700 is needed for a low-rate mortgage; and more than one-third of respondents didn’t know that other industries, like insurance companies, use credit scores to determine coverage rates.

Lack of information can profoundly affect a consumer’s ability to get credit. More than 40% of consumers don’t understand that maxing out a credit card will lower a person’s credit score. Other additional trouble spots include not understanding that interest rates are often pegged to credit scores and that multiple applications for credit in a short period of time can lower the applicant’s chances of getting credit.

With so many people unsure of what their credit score is and how it affects them, one of the best things that new consumers (especially students) can do is spend some time learning about their credit scores and finding out what helps and what hurts. In most cases, knowledge is the key to developing sound financial habits. Unfortunately for most borrowers, although the information is widely available, few actually take the time to read what’s available and fewer still analyze the information to determine its impact.

If you’re just learning financial management, a good place to start is the student financial aid office. Since most of your heavy-duty borrowing will be related to your student loans, the financial aid office may have ready resources to help you understand what you’re borrowing and how those sums will accumulate over time. They can also provide information on how to limit your need to borrow and direct you to other sources of money for your education.

The next stop should be your bank or credit union. Often, these organizations will hold mini-seminars and financial planning workshops to help you understand how you can use their services to better manage your money. As a student, your institution may also offer a personal financial planning course that may assist you in understanding credit, debt and money management.