The Scorecard for Young Physicians to Manage Credit

Young physicians fresh out of medical school leave with a lot more than a license to practice medicine. According to the Association of American Medical Colleges, the average medical student emerges from school with a debt totaling $158,000, and a third of young physicians amassed school debt of more than $200,000.

Such staggering amounts of debt typically take 25 to 30 years to repay—sobering numbers that add significant stress to young physicians just establishing a practice. What’s more, loan payments will undoubtedly consume a large portion of the modest income—typically about $40,000 to $45,000 annually-—a physician will likely earn in the first years of his or her career. Thus, it is of utmost importance for young doctors to understand how to gain and maintain control of their entire financial profile. Here are some things to keep in mind about credit:

Take Stock of the Situation

The first order of business is to find out what kind of information is posted on one’s credit file disclosure, commonly called a credit report, as well as the associated credit score. This score represents one’s perceived creditworthiness, or the likelihood a person will repay a loan according to the terms of the contract. Surprisingly, 50 percent of Americans are unaware of their credit score, even though the number has a huge impact on many areas of life.

For example, a good credit score means borrowers will have easier access to loans at the lowest interest rates, saving thousands of dollars in rate fees over time. Conversely, a bad credit score makes it far more difficult to secure credit in the first place, and what is available will undoubtedly cost more in terms of higher interest rates. A bad credit score can also derail employment opportunities, as potential employers increasingly review applicants’ credit histories and may decline to hire, equating bad credit with overall irresponsibility.

Credit Score Numbers: the Good, the Bad, and the Ugly

720-plus: A person is considered an excellent credit risk if his or her credit score is considered 720 or higher. He or she will have the best access to credit in the highest amounts, and at the lowest interest rates.
640-720: A medium credit risk; many people fall into this category. Credit is available, although not at the most attractive interest rates.
620 or lower: A person in this category is considered a poor credit risk. He or she will have more difficulty obtaining credit and will pay thousands more for it, due to the higher interest rates that creditors will charge consumers in this category.

How to Keep Credit Scores Soaring

Avoid making late payments. A single late payment can cause a credit score to decline by as much as 100 points, according to credit experts. Establish a solid payment history to help boost a credit score.

Perform periodic checks of credit reports. More than 80 percent of credit reports are found to contain at least one factual error. Contact the three major credit reporting agencies—Experian, Equifax, and TransUnion–to correct errors as soon as they are discovered, which could result in an immediate increase in one’s credit score. The reporting agencies offer free annual reviews of credit reports, but consider checking them on a much more frequent basis.

Limit the number of credit cards. Experts recommend having no more than three credit cards in one’s possession, and charging no more than 30 percent of the maximum limit on any card at one time. Never exceed the maximum on a credit card; not only will a hefty penalty be assessed, going over limit can negatively affect the credit score.

It’s important to establish a good credit history, to facilitate major purchases through the years as well as for daily conveniences such as car rentals and online purchases. Just remember, every purchase can add to—or detract from—that all-important credit score.