Get Smart About Credit Day

What the day is

Get Smart About Credit Day is kept in mid-October. It is an American Bankers Association campaign, with bank volunteers going into schools to teach teenagers and young adults about credit, borrowing and debt.

It is industry-run financial education, which is worth stating plainly. That does not make the material wrong, but the people delivering it also sell the products being explained.

Origin and background

The case for teaching this early is straightforward. Credit scores in the United States govern far more than loan approvals: they affect the interest rate on a mortgage or car loan, whether a landlord accepts a rental application, deposit requirements for utilities, and in some states insurance pricing. A score built badly at twenty costs real money for years.

The mechanics are less mysterious than they are made to sound. Payment history is the largest single factor, which means that paying on time, every time, matters more than anything clever. The second largest is utilization: the proportion of available credit actually used, where staying well below the limit helps and maxing out hurts even if the balance is paid. Length of history counts, which is why closing an old card can lower a score rather than raise it. Applications leave marks, so several at once looks like distress.

Two things people get wrong repeatedly: carrying a balance does not improve a score, and checking your own report does not damage it.

Free access to reports is a legal right in the United States, and disputing errors is free. Error rates on credit files are not trivial, and the burden of finding them falls on the consumer.

How to take part

• Pull your credit reports and read them. They are free and mistakes are common.
• Set up autopay for at least the minimum on every account. Missed payments do the most damage.
• Keep utilization low rather than zero, and leave old accounts open.
• Teach a teenager the difference between a debit card, a credit card and a loan, which many adults could not explain either.
• Read the terms on buy-now-pay-later products, which increasingly report to credit bureaus.