How not to earn a credit history

Credit: it's a word that may send shivers of happiness through college students who receive their first Visa or Mastercard in the mail. But happiness may later turn to horror when the first bill arrives.

Credit history controls everything from car insurance rates to approval for a home loan. Learning the basics can help credit virgins stay financially stable.

Paying bills responsibly and on time is essential. One late bill can put a red flag on your credit report. The advent of online billing offered by many banks eliminates the "But my mail is always slow" excuse. If money is extremely tight, using student checking and savings accounts with overdraft protection can offer a little leeway between paychecks.

I had a financial planner back in high school because my parents thought it was important to learn the basics of budgeting and personal finances before trusting me to go across the country with my college fund. I vividly remember hearing stories about other students, and adults, who paid one credit card off with another and had racked up thousands of dollars of debt by age 22.

Which leads to the adage: If you don't have the money to pay for it now, just don't buy it.

Conveniently, the U.S. government passed the Fair and Accurate Credit Transactions (FACT) Act requiring free annual credit reports to be made available to the public from each of the three national credit agencies. Checking at annualcreditreport.com each year can give students an idea of how they're doing. Bonus: Doing so also helps prevent identity theft.

Most importantly, understanding how credit reports work can help you fix any problems that do arise. Credit reports contain information about you as a consumer, including where you hold bank accounts, which credit cards you own (or have owned) and how long you owned them. Your credit report also shows how many times different agencies have requested your information.

Most minor problems, like a one-time bill delinquency, will be erased after seven years, but bankruptcy remains on the report for ten. If inconsistencies are noticed, contact the consumer-reporting agency that gave you the bad score with documentation proving your case, and the score will be changed.