University of Virginia Logo

Personal Credit

So what is a credit score, anyway? And how can I find a copy of my credit report? I think carrying a balance on a credit card from month-to-month helps to improve your credit score, right?

 

These questions are common for young adults to have as they begin their journey to long-term financial wellness. Obtaining your first credit card can be a little overwhelming with all the available choices and adversitements seen on a daily basis. And after recieving a credit card, how do you know if your card is actually a good fit for you?

A handout containing brief summaries from each section of the Personal Credit webpage.

Types of Credit Cards

It's important to first understand the different types of credit cards that are available to you as you begin building a credit history. The four main types of credit cards are:

  • Rewards - Earns rewards on some or all purchases. Some cards pay out between 1-2% of your purchase, while others give an extra bonus in specific spending categories each month. Rewards can be redeemed in a variety of forms, including cash back, airline miles, and hotel vouchers.
  • Low Interest - Intended for consumers who carry debt on their credit cards each month. Low interest cards typically come with a lower credit limit and little to no rewards for the cardholder.
  • Balance Transfer - Best for individuals who already have a significant amount of credit card debt. These cards allow you to shift your current debt to a new card, and usually give a grace period (6-21 months) to pay it off interest-free. A balance transfer card comes with a one-time balance transfer fee up to 5%.
  • Secured - Secured credit cards require a user to put forth a certain amount of money as collateral when opening an account, which is usually equal to the credit limit. These cards are meant to help a consumer build or repair credit before moving on to an unsecured card.

In short, rewards cards are generally meant for people who pay their bills in full each month. Low Interest and Balance Transfer cards are handy if you already have credit debt, or if you know you'll be carrying a balance from month-to-month. Secured cards function similarly to a debit card, and are best for people with poor or no credit history.

Understanding Your Statement

If you already have a credit card, have you ever looked at everything included in your monthly statement? Do you know what your APR is, how to find it, and why it's important? What about the Schumer Box?

  • The APR (or Annual Percentage Rate) is a yearly representation of the cost involved with "borrowing" money on a credit card. Most cards come with an APR of 13-22% per year.
  • A Schumer Box is a table that discloses pertinent information about a credit card, including interest rates, any grace periods, minimum charges, annual fees, transaction fees, and penalty fees. Before signing up for a credit card based on the introductory offer, make sure to look at the Schumer Box to fully understand the terms. Below is an example of what a Schumer Box looks like.

  • Think about this: If you buy a TV for $1,000 on your credit card at 15% interest, make no other purchases on the card, and only pay the minimum monthly payments on your balance ($23), it will take you 64 months (over five years!) to pay off that TV in full. You would also be paying an extra $451 of interest during that time period.

 

Credit Scores & Reports

Maintaining a high credit score gets a lot of attention thanks to services like Credit Karma, Capital One's Credit Wise, Discover's Credit Scorecard, and more. But what actually goes into a credit score remains a mystery for most consumers. More credit scores range from 300-850, with scores of 750 and higher considered excellent.  The higher your credit score is, the more likely you are to be issued a loan with favorable terms. Below is a breakdown of what most credit scores are comprised of.

This pie chart explains the breakdown of a typical credit score.

 

 

While less popular than the credit score, a credit report is actually a more important measure of your financial well-being. Credit reports contain information including:

  • Personal information (name, social security number, known addresses, etc.)
  • Satisfactory and unsatisfactory credit accounts
  • Potentially negative items (bankruptcy, public records, etc.)
  • Requests for your credit history
  • Contact information for the bureau doing the reporting
  • Your consumer rights

An easy way to differentiate between a credit score and credit report is to think of the credit report as the financial 'work' you've done, and the credit score as the 'grade' you receive for your work. Did you know that you can access your credit report once per year with each of the three major credit bureaus (Experian, Equifax, TransUnion)? Review yours at AnnualCreditReport.com.

 

Resources

Places to Compare Credit Cards

Understanding Your Current Credit Card

Credit Scores and Reports

 

Sign Up For a Counseling Session

If you'd like to request an appointment with a counselor, please email PeerFinanceCounseling@virginia.edu with your name, the time you'd like to request, and a brief summary of your questions. The Peer Financial Counseling headquarters is located on Central Grounds, in Room 245 of the Dathel and John Georges Student Center. Counselors will be holding office hours from 2 - 6 p.m., Monday through Thursday, each week.