Establishing a good credit history and maintaining a good credit score is critical when you want to borrow money.
General Information
Before lenders extend you credit, they want to know the likelihood you will be able to pay them back. Your credit score is one way lenders determine this. It is important to have a good credit score because there are many companies that require a credit check even if you are not getting a loan. These can include cell phone carriers and utilities like gas or water. A ‘Credit Score’, ranging from 300-850, is based on a credit report. A credit report is an individual snapshot of your current debt, payment history on loans, and any bills in default or collection status.
There are some aspects of your credit report that impact your score more than others. The categories that impact your credit score the most are: payment history, amounts owed, the length of credit history, new credit, and types of credit used. According to the Federal Deposit Insurance Corporation (FDIC) there are three main credit bureaus that calculate your credit score: Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.transunion.com). Lenders use an average of these and will have different rates for loaning money based on your score.
Use these tips to help understand, improve or maintain your credit score:
1. Get a Credit Report and a Credit Score.
2. Pay your bills on time.
3. Keep your balances low on credit cards.
4. Apply for new credit accounts or loans only as needed.
5. Pay extra money towards highest interest rate loans when you can.
6. If you are having difficulty paying bills, look into payment plans that are manageable to avoid going into collection or default status. You can sometimes also make a lot of progress by talking to someone at the company or agency on the phone and telling them your situation. Be polite!
7. Review your Credit Report each year, and before making any large purchases, to check its accuracy.
Resources
Learn more about Credit Scores www.myfico.com/CreditEducation/CreditScores.aspx.
Explore tips on managing your money at www.fdic.gov.
For a free credit report go to www.creditkarma.com.