Background

Continuing Your Credit Momentum

with the Fresh Start Programs

Overview

The Department of Education recently announced changes to student loan credit reporting through the Fresh Start and Fresh Start Plus programs. For the millions of borrowers struggling with their federal student loans in default, this is welcome news. But how can consumers keep their credit momentum going?

Before getting started, check out our resource page on the changes.

Building Credit Momentum and Health

For consumers participating in the Fresh Start programs, it’s a great time to consider how you can build on the momentum of your credit health.

Building your credit profile is something that can take time. But by staying on top of your debt payment strategy and being mindful about how you’re building your credit file, you can position yourself for long-term success with your financial goals.

How Credit Scoring Works

A credit score is a number calculated using the information from your credit report, which is generally updated each month. Credit scores represent your creditworthiness and help lenders determine the likelihood that you will repay a debt as agreed.

Here’s how a credit score is generally weighted:

  • Payment History: 35%
  • Credit Usage: 30%
  • Credit History: 15%
  • Credit Mix: 10%
  • New Credit: 10%

Learn more about how credit scores are determined and how your financial habits influence them at TransUnion’s resource page here.

Expert Tip: In general, the lower your credit utilization ratio, the better your credit score. Aim for a total utilization ratio of no more than 30% for each of your credit cards or in total across all of your credit card accounts.

Building Your Credit File

It may come as a surprise, but debt can be categorized into either ‘good debt’ or ‘bad debt.’

Taking out a student loan is an example of taking on good debt if the borrower makes their monthly payments. Debt with high interest rates is an example of bad debt if not paid on-time. It’s typically best to pay off your balances every month, if possible. Doing so helps keep the amount you owe low and shows lenders that you can make on-time payments.

Learn more about building your credit file with good debt at Equifax’s resource page here.

Expert Tip: Any debt is considered ‘bad debt’ if you can’t make payments based on the agreed upon terms. It’s important to consider your ability to make payments when opening new lines of credit.

Building Your Credit History with Alternative Data

Consumers today can use data that is not traditionally found in a credit report, such as recurring rental, utility and streaming service payments, to build their credit history and score. Including this information in lending decisions could expand credit opportunities for millions of Americans, including established borrowers. But how can you get this information on your credit report?

Some landlords use services like PayYourRent, a rent payment software that reports consumers’ recurring payment data to all three major credit bureaus (Equifax, Experian and TransUnion). Check with your landlord about their rent payment software to determine if the service reports to the bureaus. Consumers also have the option to manually report their rental payment information through services like RentReporters.

Learn more about how alternative data like financing a cellphone or reporting rent payments can help you build credit from Experian’s resource page here.

Expert Tip: Checking your credit report can help you determine if your rental payment information is being reported to the three nationwide credit bureaus. Consumers can access a free weekly credit report through www.annualcreditreport.com.