Credit 101

Don't let your credit score ruin your life. Get a quick handle on the confusion around credit.

Credit Score

Your credit score affects your ability to get a loan, buy a home, or obtain secured loans (car, business, etc.).

Credit scores, sometimes called "FICO scores" (named after the financial organization that founded the method of score calculation) will determine if you are eligible to apply for a mortgage, student loans, or car financing.

Your credit score is a number between 300 and 850. The higher the number, the better. A high FICO score indicates to a lender that you are in solid financial standing and have taken the necessary precautions to use credit responsibly.

 

Credit Reports

What are they, what's in them, and what does it mean?

A credit report is a record of your financial behavior. Three national credit reporting agencies—or bureaus—maintain these records. They are Equifax, Experian, and Trans Union.

Credit reports (also known as your credit file, credit profile, or credit history) contain:

  • Your Identification, including your name, telephone number, and address, as well as your Social Security Number, birth date, and employer. (The information usually includes previous addresses and employers too.)
  • Your Credit History, which details payments to banks, credit unions, finance companies, mortgage companies, and retail stores, and how good you are at making payments on time.
  • Any existing Public Records, such as bankruptcies, judgments, or tax liens.
  • Inquiries, or authorized credit checks by companies receiving your applications for credit (hard inquiry), or for the purpose of pre-qualifying you for credit (soft inquiry).

 

Improving Your Credit Scores

What helps?
Remember, your credit scores are based on your financial behavior, so good behavior is key to maintaining good credit scores as well as improving your current situation.

By observing the following guidelines, consumers can influence their credit position for the better:

Always pay all of your bills on time.
This proves your reliability and demonstrates consistent behavior and responsibility. It is the single most important factor in your credit score.

Check your credit reports regularly and correct inaccuracies.
Verify that the information reported about you is correct. Dispute any errors with each of the credit bureaus immediately. Some disputes may require contact with financial institutions too. While it is best to document your disputes in writing, bureaus and some institutions also provide customer service by telephone.

Continue to monitor your accounts for fraud and or signs of identity theft.
Simply review each statement and verify that all bills are authorized, accurate, and your own. Guard PINs and account numbers, and always report unauthorized activity immediately. It is a good idea to maintain a list of your account numbers and their corresponding toll-free, 24-hour customer service numbers in a handy, secure place separate from of your wallet in case it is stolen or lost.

Control your debt.
Generally speaking, keep balances below 50 percent of available credit lines.

Manage your available credit.
Lenders may conclude that applicants with multiple accounts, all with high credit limits, may have too much access to excessive unused credit that could result in the sudden or gradual accumulation of too much debt.

Don’t try to change a score overnight by suddenly closing or opening accounts.
Scores are based on complex statistical models that could make such actions backfire.

 

 

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