Along With Diplomas and Dreams, Today's College Grads Face The Future in Debt - I.I.I. Offers Tips to Become Credit-Savvy

NEW YORK, June 10, 2002 - With the sounds of Pomp and Circumstance fading into memory, the class of 2002 are packing up their dorms and preparing for the next phase of their lives. Unfortunately, along with earning diplomas, many graduates have acquired a staggering amount of debt, according to the Insurance Information Institute (I.I.I.).

In fact, the average graduate will have accumulated more than $20,000 in student loans and credit card debt, according to Nellie Mae*. In addition, most students will have tripled the number of credit cards they own by graduation.

"How a person manages student loans, credit cards and other debts will effect their lives in a surprising number of ways," says Jeanne M. Salvatore, Vice President, Consumer Affairs, Insurance Information Institute. "Establishing good financial skills and working to build a good credit standing will serve graduates well now and in the future."

Linda Golodner, president, National Consumers League, points out that young people are frequently unaware that an individual's bill paying history will result in a personal credit score based on their credit history. "Many graduates don't think they need to worry about their credit score until they need a mortgage to buy a house, and it can come as a shock when they find out that employers routinely access credit scores as part of the application process."

Having a good credit history, which leads to a good credit score, is generally considered to be the mark of a mature and responsible person, says Salvatore. In fact, graduates will find that their credit may be accessed in the following additional situations:

  • Renting an Apartment
    In competitive housing markets, landlords will generally rent to the person or couple with the best credit history. Those with a poor credit history will have to pay a larger security deposit and/or have the lease co-signed by a parent, employer or other financially secure individual.

  • Signing up for Utilities
    Local phone, cable, electric and gas companies will require large cash deposits before providing service to those with poor or no credit history.
  • Renting a Car
    Increasingly, car rental companies are checking a person's credit history before they will let a consumer drive one of their vehicles.
  • Securing Loans
    A solid credit history will make it easier to apply for a car loan or mortgage and will offer a wider array of financing options.
  • Applying for a Job
    Potential employers routinely check a person's credit history before deciding whether to hire that individual. The rationale is that a person with good credit might be more responsible and less likely to be distracted by financial worries.
  • Purchasing Auto or Homeowners Insurance
    Increasingly, insurers are using credit-based insurance scores to decide who gets auto and homeowners coverage and how much they pay. All else being equal, a person with a good insurance score will pay much less for insurance than someone with a poor score.

"An insurance score is different from a credit score," explains Salvatore. "An insurance company uses credit information, together with your driving record and insurance history, to predict whether you are more or less likely to file an auto or homeowners claim," adds Salvatore. "This allows them to provide insurance to more people and to offer it at a lower cost to those who qualify. That can be important to college grads since they are part of a group that generally pays more for auto insurance."

Financial experts suggest that graduates work to build a positive credit history by:

  • Setting up a budget and sticking to it.
    When they get their first job, graduates need to sit down and determine exactly how much money they are earning versus how much they owe. Too often people make financial decisions based on how much they think they will earn, rather than what they are currently making. Many graduates also underestimate the cost of day-to-day living and need to consider living with roommates or their parents a little longer.

  • Paying bills on time
    Promptly paying all bills, payments due on loans and credit cards will help to build a strong credit history, while missed payments can have a devastating effect. Late payments can also be more expensive since they frequently result in extra fees or other penalties.
  • Use credit responsibly
    Remember, credit is a loan -- one that will need to be re-paid with interest. Monitor monthly bills and make spending adjustments accordingly. Also, avoid spending up to the limit on credit cards. It is a good idea to have credit available for emergencies such unplanned medical costs or car repairs.
  • Keep in touch with creditors
    Far too often, young people get into financial trouble because they change apartments or return to college and forget to tell their creditors. Anyone who is expecting a bill and does not receive it in the mail should contact the creditor, landlord or utility immediately. A lost bill can easily turn into a late payment. Those who find themselves in a financial bind should contact their creditors and arrange a re-payment schedule that is mutually acceptable.
  • Consider credit counseling

    Those who find themselves in a financial bind should consider credit and money counseling. Information is available from the National Foundation of Credit Counseling at www.nfcc.org or the American Center of Credit Education at www.acce.org.

For additional information regarding credit, contact the Consumer Data Industry Association at www.cdiaonline.org or access www.myfico.com to get a copy of your credit score. Those with insurance questions can contact the Insurance Information Institute at www.iii.org or call the National Insurance Consumer Help line at 800-942-4242.

*Nellie Mae - a leading provider of student loans.

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