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UMe U-niversity: Credit Basics for Students 

Let’s get right to the point and make credit easy to understand: 


What is credit? Credit is funds you are approved to borrow, so you can get things you want or need now, even if you don’t have all the money right away. When U use credit, you’re promising to pay for something later. It’s that simple. 

There are three main types of credit: 

    • Installment credit is like when you get a loan for a house, a car, or for your education. 
    • It’s when you borrow a big amount of money and then pay it back bit by bit, in smaller payments, for a period of time, called term. You also have to pay some extra money over what you borrowed, called interest.  
    • Credit cards and lines of credit are examples of revolving credit. 
    • This type of credit is like having a special account where you can borrow money whenever you need, up to a certain limit. You can pay back what you owe a little at a time, but you don’t have to stick to a strict schedule. However, if you don’t pay back the money quickly, you’ll get extra charges against what you borrowed, called interest. So, it’s a good idea to pay back what you borrow early or on time.  
    • Your utility bills, like electricity, cable, and water, are all examples of open credit accounts.  
    • With open credit, how much you pay can change with each statement, but you’re expected to pay the total amount of what you owe at the end of your billing cycle.  


How does credit work? When U use credit, you’re borrowing money to buy something now and promising to pay it back (pay for it) later. This borrowing information goes to three special places called credit bureaus: TransUnion, Experian, and Equifax. They keep track of your borrowing and pay-back history – and make a report about it. This report is like your money report card, and it’s called your credit history. 

From this report, you’ll be given a credit score, which is kind of like a grade. There are two types of scores: FICO and VantageScore. They’re similar, but not exactly the same. FICO cares a lot about how long you’ve been good with your money, while VantageScore looks at how much money you owe. 

If you’re really good at paying your bills on time, your score goes up! A high score, like between 800 and 850, makes it really easy to borrow money when you need it. But if your score is low, like between 300 and 579, lenders might be more cautious about letting you borrow money. So, it’s like trying to get a good grade for your good money behavior! 


Why is credit important? Credit is important because it is a special tool that can help U and your family have a better life with more options for funding down the line. It allows you the access to get important things, like a new home or a loan for a business, even if you don’t have all the money right away. 

UMe Pro Tip: Use credit as a tool carefully. Have a good record (credit history), because if you do not, it can be harder and more expensive to get the things you need. Having a higher score (A.K.A. better score) offers you lower interest rates. That means, paying less to borrow money.  


How can I build good credit? One tried and true way to build up your credit is to make sure U pay your bills on time. That’s a really important step because it helps you get a good score for how you handle money. But — that’s not the only thing the credit bureaus look at. They also look at how much money you owe, how long you’ve been using credit (remember those different types we talked about at the beginning of this post?), and the different kinds of credit activities you’ve done. 

UMe Pro Tip: Look at your credit report for free once a year. Just like how U might check your car for any scratches or dents, you can check your money stuff for mistakes too. If you see something wrong, like a wrong address, or if someone used your credit without permission, you can tell the credit bureaus. And guess what? You can check your money report more than once a year, but sometimes you might have to pay a little fee for that access. 


Simply put, credit helps you get things you need or want when you don’t have the funds upfront. However, it’s important to use credit carefully by paying your bills on time and being smart with your money. Your credit score is your money report card, and a good score can give you more access to future funding, which can improve your quality of life when utilized well. So, having good credit is like having a superpower for money!  

Keep learning about money and credit, and you’ll be on the path to making smart financial decisions! 

Check out our UMe Student Credit Best Practices blog here.

If you’d like some personal guidance, email or call us today! Our Personal Bankers are here to help U get financially fit! 


Disclaimer: U matter to Me (all of us) at UMe — and that’s why we do our best to deliver helpful information on our blog. Please note the following: (1) UMe Credit Union works hard to make certain that the information we post here is as accurate as humanly possible. But as you know, information can change and evolve quickly. While we try to update the blog on a regular basis, the content of some older posts may not be correct or up-to-date. (2) Some destinations on the World Wide Web that we link you to will exist on external websites. UMe Credit Union does not officially endorse any connected sites, nor do/did we compensate or get compensated by any entities to be featured in our posts (unless otherwise noted). (3) Everyone’s situation is unique and we advise you to consult with our personal bankers or your finance, tax, or legal professional for advice individualized to you!

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