Education 101

Credit is more than just a score. It’s the life story of your borrowing habits — for better or worse. And to lenders, it’s an indicator of your ability to repay debts.

A good credit score could save you hundreds of dollars a month on your house payment, car payment and lower your car insurance rates.

What’s in your credit report?

The credit report contains four important areas of information:

• Personal: Name, address, Social Security number, date of birth, and employment information

• Credit history: Types of accounts, the date you opened the account, your credit limit or loan amount, the account balance, and payment history

• Public records: Bankruptcies, foreclosures, garnishments, legal suits, and judgments

• Inquiries: List of creditors that accessed your credit report in the last two years

What makes up your credit score?

A credit score is a number based on a snapshot of your credit report that helps a lender determine your ability to pay back debt (your score = your credit risk). Fair Isaac’s FICO ® scores are widely used credit scores.

35% payment history: Looks at items such as late payments and bankruptcies, which can hurt your credit score.

30% amounts owed: Considers your debt and your available credit lines. The more you owe compared to your credit limit, the lower your score will be.

15% length of credit history: Checks how long you had your credit accounts and how often you use them. A longer credit history will usually increase your FICO ® score.

10% new credit: Looks at new credit accounts you opened and new credit requests (such as credit cards). Multiple credit requests also represent greater credit risk.

10% types of credit used: Considers how many credit accounts and how many installment-type accounts you have. A diverse credit portfolio can strengthen your report.

What does your score mean?

These scores show the typical profile for borrowers based on their FICO score.

800+

Middle-age person with 25-year credit history, mortgage loan 20 years ago, $4,000 auto loan, 3 credit cards with no balances, no late payments.?

750-799

Homeowner with 25-year credit history, mortgage loan 20 years ago, one credit card with no balance, no late payments.

700-749

Person in her 30s with 15-year credit history, mortgage for 12 years, three credit cards with total balances of $3,000 and total credit limits of $18,000, no late payments.?

650-699

Homeowner in his early 40s with 15-year credit history, mortgage for 12 years, two credit cards with total balances of $3,000 and total credit limit of $6,000, no late payments.

600-649

Renter in her mid-30s, 10-year credit history, no mortgage, first car loan six months ago, a late credit card payment a year ago, $5,000 credit card balance with $10,000 limit.

550-599

Renter in his 30s, 5-year credit history, no mortgage or car loan ever, a late credit card payment three months ago, $2,500 credit card balance with $5,000 limit, one account referred to collection 5 years ago.

Under 550

Renter in her 40s, 5-year credit history, no mortgage or car loan ever, $200 currently past due on one credit card, $2,500 credit card balance with $5,000 limit, bankruptcy a year ago.?

The Three Kinds of Credit

Installment Credit

Loans that require set payments, such as:
• Car loans
• Mortgage loans
• Student loans
• Boats, computers, TVs, etc.

Revolving Credit

You can use funds at anytime up to a specific dollar amount.  You can make monthly payments or pay the balance in full.  Any amounts left over after monthly payments are carried over with an interest charge.  Some examples are:
• Credit cards
• Check overdraft protection
• Home equity lines of credit
• Department store credit cards

Open Credit

Payment for services such as:
• Electricity
• Gas
• Water

Good Credit Practices

• Pay bills on time
• Exceed minimum payments
• Stay within your budget