Road to Good Credit. Now is the time for you to start building your credit. Why is credit important to you? Where can you fi nd your credit history? How do you get started? Have you ever wondered how to build your credit? Or, you may wonder why credit is important to you. Don t worry. We have all the basic information you need to understand how to get started. eecu.org 817.882.0800 /eecudfw /eecudfw
Road to Good Credit. 1. Why is credit important to you? Lenders and companies may check your credit score when you apply for: o Auto Loan o Credit Card o Apartment o Mortgage o Utilities o Insurance o Job It speaks volumes: Your credit score shows lenders and companies how fi nancially responsible you are. It is your purchasing power, which determines o whether you will get approved for a loan or credit card. o the interest rate on your loan or credit card. It may impact your hirability, because some employers check your credit history in order to determine if they can count on you to fulfi ll your responsibilities. Do you have credit? It doesn t matter if the answer is Yes or No, this is what you should know. What s the difference between credit history and credit score? Credit History: A record of your payment history on any loans, credit cards and lines of credit you have had or currently have. Credit Score: Your credit score is a rating of your credit history. It s used by lenders and other organizations to decide how likely you are to pay back your debts. Note: Just because there are a lot of items on your credit history doesn t mean you have good credit. If there are late payments or unpaid debts on your credit history, you may have a low credit score.
Attention You may have heard catchy commercials offering free credit scores online, but be aware that these sites often charge you for other services such as credit monitoring. You should not be required to enter credit card information to retrieve your credit history. 2. Where can you find your credit history? Federal law allows you a free copy of your credit report every 12 months from each credit bureau (Equifax, Experian and TransUnion). You can download your credit history once each year from www.annualcreditreport.com without ever entering any payment information. If you would like to see your credit score online, you will most likely have to pay a fee for it, and it may be a different score than the one lenders see.. If you apply for a loan or credit card, you are entitled to see the score used whether you are approved or denied. Most lenders use a FICO credit score to rate your application. Here is how a FICO is calculated: 35% 15% Calculating a FICO Score 10% 30% 10% History of on-time payments The amount you currently owe The age of your credit history How much of your debt is new Types of credit (credit cards, loans, etc.) ACCOUNTS Each of the loan and credit card accounts that have been active during the seven years prior to pulling your credit report may be listed along with your payment history. Generally, each month s payment status is included, so if you missed a payment or an account was turned over to a collection agency, it s likely going to show up on your report.
Credit reports contain a few key components you should be familiar with in order to understand what you re looking at: Payment History Legend - This is there to show you how the report labels your payment history. This will include codes which identify times when you made loan payments on time, times when your payment was late and instances when a loan was turned over to a creditor or a vehicle was repossessed. Payment History Legend Payment history legend OK Current/Terms of agreement met VS Voluntarily surrendered 30 Account 30 days past due R Repossession 60 Account 60 days past due PBC Paid by creditor 90 Account 90 days past due IC Insurance claim 120 Account 120 days past due G Claim fi led with government 150 Account 150 days past due D Defaulted on contract 180 Account 180 days past due C Collection CRD Creditor received deed CO Charge off FS Foreclosure proceedings started CLS Closed F Foreclosed ND No data for this time period Payment History
3. You may be wondering, How can I build a strong credit report when I don t have a credit history? Ways to get started: 1. Cosign with a parent or guardian: If you have little or no credit history, many lenders will take a cosigner s credit into account when evaluating a loan application. If you are unable to repay the loan, the responsibility will fall on the cosigner. Make sure you make payments on time, as a cosigner s credit is also affected by your payment history. 2. Open the right credit card: A credit card is a great way to establish a regular payment history. Choose one that fits your personal needs. Some have monthly or annual fees, and some also reward you with points, airline miles or other incentives. 3. Use your credit card for small purchases: If you max out or maintain a high balance on your card by paying only the minimum payments, your available credit will be very low, which may tell a lender that you haven t used your credit responsibly. 4. Pay off your balance each month: In addition to keeping a healthy credit to debt ratio, you won t be charged any interest when you pay off the entire balance each month. 5. Pay your bills on time: Rent, phone bills and other utilities may occasionally be reported to credit bureaus. 6. Use student loans for education purposes only, and pay them back on time. Actions that may hurt your credit history: 1. Cosigning for a friend: Remember that if a loan you have cosigned for is not paid back on time every month, it will affect your credit too. 2. Applying for several loans or credit cards at the same time 3. Defaulting or making late payments 4. Closing a credit line: If it is one of your oldest accounts, it will reduce the age of your credit history. This may also reduce your available credit. 5. Carrying a high balance Your credit history is a personal identity for you, and it stays with you throughout your life. Even if you won t be buying a vehicle or home for several years, now is the time to begin building a healthy credit history to make sure the process is an easy one when you re ready.