Why is credit Matters
What is credit, and why is it important? Think of credit as your resume to potential lenders. It showcases your borrowing and repayment history. A solid credit history or "resume", generates a good credit score. Lenders see that good score and reward you with lower rates and favorable loan terms.
Your credit history is built of items including purchase made with credit cards, loan payments, and even the timeliness of your payments. Your choices and spending habits can make or break your reputation as a borrower. Paying your bills in full and on time is key to building a strong credit score. If Lenders see you have a poor credit history and low score, they may consider you a risk and may deny you for credit cars, or even certain loans. In the least you'd have to take out loans with higher interest rates.
Your credit not only affects your borrowing, but often Landlords and Employers often take a look at your credit. This is yet another way to gage if you a going to be a risk to their property or company.
Your credit history is built of items including purchase made with credit cards, loan payments, and even the timeliness of your payments. Your choices and spending habits can make or break your reputation as a borrower. Paying your bills in full and on time is key to building a strong credit score. If Lenders see you have a poor credit history and low score, they may consider you a risk and may deny you for credit cars, or even certain loans. In the least you'd have to take out loans with higher interest rates.
Your credit not only affects your borrowing, but often Landlords and Employers often take a look at your credit. This is yet another way to gage if you a going to be a risk to their property or company.
Histories vs. reports vs. scores
Credit History: a record of a borrowers debts and repayments
Credit Report: an official record of a borrowers credit history. Lenders, collection agencies, utility companies, and others report your credit history to the three credit bureaus.
Credit Score
A credit score is a numeric representation of a borrowers creditworthiness that is assigned based on said borrowers credit history. The most widely known and accepted scoring formula is the FICO score.
Credit Report: an official record of a borrowers credit history. Lenders, collection agencies, utility companies, and others report your credit history to the three credit bureaus.
- Equifax
- Experian
- TransUnion
Credit Score
A credit score is a numeric representation of a borrowers creditworthiness that is assigned based on said borrowers credit history. The most widely known and accepted scoring formula is the FICO score.
Facts vs. fiction
Fiction: "I've never had any debt, so I must have excellent credit!"
Fact: If you've never taken out a loan or used a credit card, you actually wont have a score. You earn credit by using it. Without a record of responsible borrowing, lenders can't determine if you are a risk or not.
Fiction: "I make a lot of money, so I will have good credit"
Fact: Credit is not determined by income, but instead how you use and handle that income. You may make good money, but if you are living beyond your means, carrying credit card balances regularly, making late payments, and generally putting yourself into a lot of debt, you will have poor credit.
Fiction: "If I pay off some bad debts, my credit will instantly improve!"
Fact: While it is best practice to pay off your debts and catch up on those unpaid bills, it will not automatically fix your credit troubles. Your credit report shows both the positive and negative accounts including collection accounts, charge-offs, and late payments for up to 10 years in some instances.
Fiction: "I made some mistakes and now have to live with bad credit"
Fact: You can fix your credit
Fact: If you've never taken out a loan or used a credit card, you actually wont have a score. You earn credit by using it. Without a record of responsible borrowing, lenders can't determine if you are a risk or not.
Fiction: "I make a lot of money, so I will have good credit"
Fact: Credit is not determined by income, but instead how you use and handle that income. You may make good money, but if you are living beyond your means, carrying credit card balances regularly, making late payments, and generally putting yourself into a lot of debt, you will have poor credit.
Fiction: "If I pay off some bad debts, my credit will instantly improve!"
Fact: While it is best practice to pay off your debts and catch up on those unpaid bills, it will not automatically fix your credit troubles. Your credit report shows both the positive and negative accounts including collection accounts, charge-offs, and late payments for up to 10 years in some instances.
Fiction: "I made some mistakes and now have to live with bad credit"
Fact: You can fix your credit
Smart Credit moves
Check Your Credit Report Annually
Did you know you get 1 free Credit Report pull from each of the main credit agencies (Equifax, Experian, and Transunion) per year? You should definitely take advantage of this. Check your reports for anything that may be missing or for mistakes. Sometimes you can catch mistakes and dispute them to help your score!
Pay On Time
Paying bills late is a sure way to hurt your credit, plus, late payment histories can stay on your credit report for up to 7.5 years! If you are struggling and concerned about making payments or are over 30 days late on a payment, call your lender immediately! You may find that they can come up with a plan that works best for the both of you that will protect their investment in you and your credit.
To prevent missed or late payments, try setting automatic payments or in the very least payment reminders!
A Healthy Mix
A strong credit mix may actually help your credit.
For example, if you only have credit cards, consider taking out a loan and vice-versa. Why is this mix important? It shows lenders that you can manage different obligations when it comes to debt.
Did you know you get 1 free Credit Report pull from each of the main credit agencies (Equifax, Experian, and Transunion) per year? You should definitely take advantage of this. Check your reports for anything that may be missing or for mistakes. Sometimes you can catch mistakes and dispute them to help your score!
Pay On Time
Paying bills late is a sure way to hurt your credit, plus, late payment histories can stay on your credit report for up to 7.5 years! If you are struggling and concerned about making payments or are over 30 days late on a payment, call your lender immediately! You may find that they can come up with a plan that works best for the both of you that will protect their investment in you and your credit.
To prevent missed or late payments, try setting automatic payments or in the very least payment reminders!
A Healthy Mix
A strong credit mix may actually help your credit.
For example, if you only have credit cards, consider taking out a loan and vice-versa. Why is this mix important? It shows lenders that you can manage different obligations when it comes to debt.
