Banking on a New Generation of Good Credit Habits

Oct 18, 2011, 14:49 ET from American Bankers Association

ABA Education Foundation dispels common misunderstandings about credit

WASHINGTON, Oct. 18, 2011 /PRNewswire-USNewswire/ -- More than 3,300 bankers from around the country will honor national Get Smart About Credit Day on Oct. 20 by reaching more than 122,000 young adults with important lessons on building good credit habits that last a lifetime. Topics include how to manage a credit card and read a credit report, protecting your identity and recognizing signs of overspending. The American Bankers Association Education Foundation, the sponsor of the Get Smart About Credit program, is celebrating the day by debunking common misunderstandings about credit.

"Through this program, bankers are providing roadmaps for young adults to embark on the journey to good credit," said Laura Fisher, executive director of the ABA Education Foundation. "Building good credit takes time and young adults need to begin healthy financial habits early. We want young people to understand that the financial decisions they make now can impact their ability to get loans, or even a job, in the future."

The path to good credit can be a long and windy road. To help better understand the complexities of credit, the ABA Education Foundation offers the following myths vs. facts:

MYTH: I'm a 23 year-old with perfect credit, I've never missed a payment and should qualify for the best possible interest rate.
FACT: A positive payment history is certainly an important part of your credit, but it is only one of the factors that goes into a credit score. The bank has to determine the risk involved in lending money to you. They want to see a long credit history of on-time payments and different types of loans (a car loan, mortgage, credit card). Lenders also consider your income level, amount of debt or potential debt in addition to your credit score.

"We recommend that people start small and start young," said Fisher. "Get a credit card with a low limit or a small loan from your bank. Make payments on time and never take on more debt than you can handle. Eventually you will develop a positive payment history that will help you get the best possible interest rate."

MYTH: If I pay my utility, cable and cell phone bills on time, I'll improve my credit score.
FACT: Payment history to utility companies generally is not included on your report. But that doesn't mean you should stop making payments. If the utility company reports a delinquent payment to a debt collection agency, that will go on your credit report. If you want to improve your credit score, you can get a small loan from your bank or get a store credit card to make purchases, but be sure to pay the bill each month.

MYTH: Once the bank extends me a line of credit, they can't reduce that amount.
FACT: The bank can lower your credit limit at any time. Various reasons may include: they simply don't have the money to extend, the economy is riskier, and/or you demonstrated that you can't pay it back by taking on more debt or missing a payment.

MYTH: Helping out a friend or family member by co-signing for a credit card can help me build a credit history without any risk.
FACT: As the co-signer, you are just as responsible for repaying the loan as your friend or family member. If there is any delinquency or default on the loan, it will appear on your credit report and negatively impact your credit score. Think twice before you co-sign – it can ruin your relationship and your credit.

The program, now in its ninth year, also offers a website for those who don't receive an in-person lesson from a banker: The website offers components of the Get Smart About Credit program including tips, quizzes and a host of credit-related information.

The ABA Education Foundation provides financial education programs and resources that help bankers make their communities better. More than 123,000 bankers have taught basic finance skills to some 5.2 million young people through participation in the Foundation's signature programs, Teach Children to Save and Get Smart About Credit. Founded by bankers in 1925, the foundation is guided by a board of bankers and is an affiliate of the American Bankers Association.

For more information, visit or call 1-800-BANKERS.

SOURCE American Bankers Association