Credit & Debt

How much you owe and how much you can borrow.

Many people need to borrow money at some point in their life. It may be to purchase a car, pay for college, or to buy a house. Using a credit card is a way to acquire something before payment with the promise to pay it in the future.

In July 2021, the Federal Reserve released data that showed Americans’ outstanding revolving debt reached $998.4 Billion, mostly in credit card debt.

Credit is valuable when used correctly, but if misused, it can cause high levels of debt, which can be difficult and take time to pay off.

Understanding what credit is, what it affects, and how to use it effectively is important. Learning about credit increases your likelihood of becoming more financially stable. A good credit score can also increase your chances of getting future loans with lower interest rates.

What is Credit?

Credit is borrowed money that you promise to pay back in the future. It is used to purchase products and services that must be repaid. Typically, the amount paid back will be more than received because of the interest rate and fees if the money is not paid back in the grace period.

A grace period is the timeframe given that you must pay back the credit card in full without being charged interest on what was borrowed. If it is not paid off within the grace period, then interest is added to the amount that needs to be paid back.

Each month you will receive a credit report which shows your payment history with creditors. A credit report shows how much credit is being used, how well debt is paid back, who is inquiring about your credit, and information on bankruptcies.

What is a Credit Score?

A credit score is calculated using the content of your credit report. It’s a number between 300–850 that depicts a consumer’s creditworthiness or how likely they are to repay their debt. The higher the score, the better a borrower looks to potential lenders. Your score gradually changes with the way that you handle credit.

Excellent 781-850
Good 661-780
Fair 601-660
Unfavorable 501-600
Bad below 500

FSU Credit Union offers SavvyMoney online and through our mobile app as an easy free credit monitoring tool. It’s essential to regularly check your credit report to ensure the information is up-to-date and accurate.  

What Affects a Credit Score?

Your credit score is a numerical representation of your creditworthiness, indicating the likelihood that you will repay your debts responsibly. Several factors contribute to your credit score, and understanding them can provide insights into your financial situation. Here are the primary factors that influence your credit score:

  1. Payment History: This is the most crucial factor, accounting for about 35% of your credit score. It considers whether you make payments on time, any late or missed payments, and any history of delinquencies or defaults. Regularly making timely payments demonstrates financial responsibility and helps maintain or improve your credit score. Late payments may indicate financial stress or poor money management.
  2. Credit Utilization: This factor comprises around 30% of your credit score. It measures the percentage of your available credit that you’re currently using. Low credit utilization (typically below 30%) indicates responsible credit management. Monitoring your credit utilization ratio allows you to keep it within a healthy range. High credit utilization suggests a higher risk of default or overextension of credit.
  3. Credit History Length: The length of your credit history contributes approximately 15% to your credit score. It considers the age of your oldest balance, the average age of all your balances, and how long it has been since you used certain accounts. The longer your credit history, the more information lenders have to evaluate your creditworthiness. It’s beneficial to maintain older accounts and avoid closing them unless necessary.
  4. Credit Mix: A diverse mix of credit accounts, such as credit cards, loans, and mortgages, can positively impact your credit score. This factor makes up roughly 10% of your credit score. A varied credit mix indicates you can handle different types of credit responsibly. However, it’s essential only to acquire credit that you genuinely need and can manage effectively.
  5. New Credit: Opening multiple new credit accounts within a short period can be viewed as a sign of financial instability, potentially lowering your credit score. New credit applications and recent inquiries make up around 10% of your credit score. Avoiding multiple new credit applications in a short period can prevent negative impacts on your credit score. Too many inquiries or new accounts could be a red flag for lenders.

Understanding these factors helps you gauge how lenders perceive your creditworthiness. By maintaining good financial habits in these areas, you can build a solid credit profile, qualify for better interest rates, secure loans or credit cards, and achieve your financial goals more effectively.

Ways to Use Credit Responsibly

  • Borrow within your means.
  • Read and understand terms.
  • Make timely payments.
  • Keep credit utilization low.
  • Try to pay off your credit cards each month fully. If you must carry a balance, keep it as low as possible. 
  • If you are in credit card debt, pay more than the minimum monthly balance to reduce the interest owed. 
  • Don’t go over the spending limit on your card. 
  • Set up automatic payments so you don’t miss a payment. 
  • Don’t apply for multiple types of credit within a short period. 
  • Regularly monitor your credit report.

What is Debt?

Money or financial obligations that one party owes to another is called debt. It is created when a borrower receives funds, goods, or services from a lender or creditor and agrees to repay the borrowed amount, typically with added interest, over a specified period.

Debt can take various forms, including:

  1. Loans: Borrowing a specific amount from a financial institution or lender with an agreement to repay it in installments over time. Examples include personal loans, student loans, mortgages, and auto loans.
  2. Credit Cards: Using a credit card to make purchases or obtain cash advances, with the expectation of paying back the borrowed amount in full by the due date or in minimum monthly payments if carried forward.
  3. Lines of Credit: An arrangement that allows individuals or businesses to access funds up to a pre-approved limit. They can borrow and repay multiple times within the set limit, and interest is charged only on the amount borrowed.
  4. Overdrafts: When an account balance falls below zero, and the credit union allows the account holder to make transactions despite the lack of funds. Overdrafts usually incur fees and require repayment.


Credit and Debit Terms and Definitions

By accessing this link, you will be leaving FSU Credit Union's website. Our website contains links to third-party sites not controlled or operated by FSU Credit Union. These links are provided solely for your information and convenience. FSU Credit Union does not endorse linked websites, the views they express, or the products/services they offer. FSU Credit Union bears no responsibility for and makes no representations or warranties regarding the accuracy, legality, security, or content of the linked third-party site or for that of any subsequent links. By continuing, you will be subject to the privacy/security policies and terms of use of the third-party site, which may differ from those of FSU Credit Union. FSU Credit Union cannot guarantee the accessibility of content or features on any third-party websites that are navigable from