Because your credit reputation affects your ability to obtain loans and even find employment,
you should monitor it carefully.
Your Credit Report
As you establish credit, you are also building a report of creditors’ experiences with
you as a borrower. This report is what future lenders, employers, landlords and other
businesses review during the application process.
Your credit report is a month-by-month record of your payment history with financial
institutions and credit card issuers (companies that grant credit). It shows how much
credit you are using and how well you pay your debts.
Your Credit Score
In addition to your credit report, creditors may also look at your credit score. Your credit
score is a three-digit numerical summary of your credit report.
Credit scores range from approximately 300 to 850. The higher your score, the better.
Most lenders consider scores above 700 good credit risks, while scores below 620 may indicate
credit problems. A low score may cause you to be denied credit. With a slightly higher score
you could get credit but at a higher interest rate. If your score is high enough, you may qualify
for the best rate on a loan or credit account.
When you request your credit report, you should
consider requesting your credit score, as well
— even
though there is a fee. Fees can range from $9 to
$20.
Scores take five factors into consideration. No single piece of information determines your score.
But one or more of the factors may affect the final score more significantly than others depending on
the overall information in your credit report. Your score can also change as new information is received
by credit reporting agencies. Your score today could be different than the score you have 3 months from now.
Five Factors For Determining Credit Scores
1. Payment history.
2. Length of credit history.
3. Types of credit used.
4. Amounts owed.
5. New credit.
| A Score |
Indicates |
| Above 650 |
A good credit history. It will be easier to obtain credit quickly and at a lower interest rate. |
| Between 620 and 650 |
Basically good credit. Large loan or high credit limits may take longer or be more difficult to obtain. |
| Below 620 |
A credit risk. Credit may still be available, but at higher interest rates. |
Order A Free Credit Report
You can request a free credit report annually from any or all of the three credit reporting agencies.
These agencies also sell various financial products and services which you are not required to purchase.
You are entitled to an additional free credit report at anytime if you have been denied credit,
are a victim of identity theft, receive welfare benefits or are unemployed but expect to apply for employment
in the next 60 days.
A poor credit report could mean you will be denied a loan or credit card or incur higher interest rates.
You could also be turned down for insurance, an apartment or even a job. Review your credit report at least
once each year to ensure it is accurate and that you are not the victim of identity theft. It is also important
to check your credit report before you apply for a mortgage or other major loan.
You can request your free annual credit report online at
www.annualcreditreport.com or by contacting the agencies individually.
Self Test #3
- My credit reputation can affect my ability to find employment. T or F
- I am entitled to one free credit report each year. T or F
- My credit is partially based on how much I owe. T or F
- It is not important to check my credit report. T or F
Answers
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Basic Money Management
Basic Money Management
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