Good Credit Explained

When you apply for any type of credit, such as a credit card, car loan, mortgage or private student loan, lenders have to consider whether you’ll be able to pay back the loan without being late (”delinquent”) or even failing to pay it back at all (”default”).

As lenders review your application for credit, they look at your past repayment behavior.  If you’ve kept up to date with current loan and/or credit card payments over a  sufficent period of time, lenders view that as a good sign that you’re a responsible user of credit and ultimately worth the risk.  In other words, you may have “good credit.” 

Like grades in school, or your SATs, credit behavior is summarized into an overall credit score.  This number is a critical benchmark that lenders use to assess the likelihood that you’ll make good on the loan.

If you’re a college student, you may not have enough life experience using credit to have a good credit history.  That’s not to say that you have bad credit at all; rather, you just don’t have a track record that’s long enough to convince a lender that you’ll pay back a loan.  (Don’t feel bad about that; most of your peers don’t have a qualifying credit history, either.)

Tip: That’s why for unsecured loans, like private student loans, having a creditworthy co-signer, like parents, grandparents, spouse, friend or significant other may be required in order for you to obtain funds for school. 

Tip:  Got no credit or bad credit? Along with applying with a co-signer, taking steps to improve your credit score now can help you improve your ability to obtain credit, perhaps at lower interest rates, too.

Once you start paying back your loans, not only will you make your lender very happy, but you’ll also be building up your own “good credit” history!