A credit score is something often talked about but sometimes misunderstood. It's important to build good credit for a high score.

Justin Busath, a branch manager at Washington Mutual, said managing credit is extremely important for finances.

"If you have a good credit score, you have the potential to save quite a bit of money," Busath said. "You could potentially save thousands of dollars through a mortgage."

FICO is the most commonly used credit score.

According to their Web site, "The higher your FICO credit score, the lower your payments."

The site lists rates and payments based on various credit scores for a 30-year fixed mortgage, a 15-year home equity loan and a 36-month auto loan. According to the site, there is nearly a $1,000 difference in monthly payments for a mortgage loan based on different credit scores.

In order to be approved for a loan or save money through rates, a good credit score is vital. To ensure a good credit score, many factors are considered.

Credit scores are based on data drawn from a credit report. This data is grouped into five different categories: payment history, amounts owed, length of credit history, new credit and types of credit use.

Bryan Sudweeks, a personal finance professor at BYU, said learning about personal finance used to include only knowing how to balance a checkbook, but now it is a lot more complicated.

He explained there are five important things college students should be doing now to help build their credit score:

- Use a budget.

- Only use college loans for school.

- Be very careful with credit cards and pay off the balance every month.

- Determine what is wanted financially.

- Save 20 percent of everything earned after college.

Sudweeks said one of the best ways to help a credit score is through learning about personal finance. He said the Marriott School has created a Web site personalfinance.byu.edu to help people get their finances in order.

Busath explained various ways to build good credit scores. He said although a student should not have more than a couple credit cards or carry too much debt, it is important to have some credit history.

"A lot of the time, people want to stay away from debt," Busath said. "But you need to have some kind of credit history."

He said many people do not realize how important their credit score is until they want to apply for a loan.

For more information or to obtain a credit report or credit score visit annualcreditreport.com or myfico.com.



Copyright Brigham Young University 22 Oct 2008