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Credit Basics

Understanding Credit

Credit has two definitions—borrowed money that allows you to purchase things, and the likelihood that you will pay back these loans and be approved to take out new ones (this likelihood is demonstrated through a credit score).

Borrowed money can take many forms, such as a car loan, home mortgage, student loan, or credit cards for product purchases.

Your credit score is determined by the three credit agencies and helps lenders determine how much money you'll be able to borrow and what interest your loans will have. The interest is additional money that you are charged and will need to pay back so the lender can profit on your loan.

Borrowed Money as Credit

Having access to credit means you can buy something before you pay for it. This ability to borrow gives you, the borrower, flexibility in planning your purchases and makes it possible to pay for a large purchase over time—however, you also pay interest on the purchase amount, so use credit wisely, and only borrow money to make necessary purchases. Tuition can be a large expense, so many students and parents of students choose to take out loans to fill in the gap after scholarships and other financial aid have been awarded.

Some education loans, such as GradPLUS and parent PLUS loans, require a credit check. Credit plays a big role in your life, which is why having good credit, making payments on time, and minimizing your debt are so important.

Your Credit

Creditors (and credit agencies) look at three factors to determine your credit score, which determines your eligibility for a loan. The factors are typically referred to as the three C's of credit: character, capacity, and collateral.

Character. How you've handled debt in the past (whether you pay bills on time, pay off lenders early, carry a balance month to month, etc.) tends to determine how you will handle it in the future. When reviewing your character related to credit, lenders look at payment history, lengths of credit history, and types of credit used.

Capacity. Based on your income and other debt responsibilities (credit cards, car loans, mortgage, etc.), lenders determine whether you can afford an additional loan. They also take into account amounts owed on different accounts, how much available credit you have (or if you carry a balance over from month to month), new credit accounts, and how many lines of credit you've applied for recently.

Collateral. As a borrower, you will often need to list collateral, or something of value (like a car, fine jewelry, or property), to secure repayment of the loan. If you cannot repay the loan, the creditor will seize your collateral as repayment.

Using these three factors, credit agencies assign you a FICO credit score, which ranges from 300 to 850. This is essentially a rating of the likelihood of you being 90 or more days past due on your bill.

In the past, lenders reviewed these three criteria simply by looking at your credit report. But now, most lenders use an electronic system that assigns numbers to your credit score. The number you are assigned dictates what type and how much credit you can receive. This technique is referred to as credit scoring. A credit score tells the lender how likely it is that you will pay back the loan and adhere to the loan terms.

4 Tips for Keeping Your Student Loans in Good Standing

There are many things that impact your credit score. Your student loans may help you establish good credit and increase your credit score—or they may lower your credit score if they are not kept in good standing. These four tips will go a long way toward helping you keep your student loans current.

  1. Monitor your account. Log into regularly to be sure you know your due date, payment amount and current balance. Registering for online account access is easy if you haven’t already.
  2. Keep Nelnet updated. Let us know about any changes to your contact information, so you don’t miss any important notifications.
  3. Make your payments. On-time payments keep your account current and may positively affect your credit score.
  4. Ask for help if you need it. Life is unpredictable, and some hardships are unavoidable. Fortunately, there are lots of options if you’re worried about missing a payment, like postponing your payment or reducing how much you pay each month. If you need help, don’t ignore it: call us at 888.486.4772. We’re here to help you!

Consumer Reporting Agencies and Credit Reports

To determine your creditworthiness, potential lenders will acquire your credit report from consumer reporting agencies. You have a right to request a copy of your credit report at any time and can get one for free from each agency once a year. The four consumer reporting agencies are:


P.O. Box 740241

Atlanta, GA 30374-0241



P.O. Box 949

Allen, TX 75013-0949


Trans Union

P.O. Box 390

Springfield, PA 19064-0290



P.O. Box 1534

Columbus, OH 43216-1534


How to submit a credit dispute

If you believe Nelnet has reported your credit to one of the major consumer reporting agencies in error, follow the steps outlined below to request a credit review.

  1. First, obtain a credit report from one of the 4 major consumer reporting agencies ( Equifax, Experian, TransUnion, and Innovis) which contains the error in question. We do not accept credit review requests based on reports from a third-party source, such as Credit Karma.
  2. If you have questions about how the consumer reporting agency displays information on your credit report, it’s best to speak directly with them before contacting Nelnet.
  3. Prepare a copy of your credit report, along with an explanation of your dispute (see example below), for Nelnet to review. Please include the full PDF or printed copy of the report and not a screenshot of a specific section.

    Dispute Issue Example: Credit report shows that my student loan is in an active status, when it has been paid in full.

  4. Submit the credit dispute request in one of these convenient ways:
    1. Complete our online form at, choosing “Credit Reporting” as the topic;
    2. Send a fax to 1.402.458.2298; or
    3. Mail to: Nelnet Customer Solutions, P.O. Box 82561, Lincoln, NE 68501-2561

    You should receive a credit review response from Nelnet within 10 business days.

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