Financial Education

Get Smart About Credit

Sponsored by the American Bankers Association

What is credit?

Credit is the arrangement that allows you to borrow money now, and pay it back later. It’s used for things like credit cards, loans, and mortgages. Good credit helps you qualify for loans and better interest rates.

What is a credit report?

A credit report is just that- a report that contains information about a person's credit. It includes:

• Your current and past debts such as credit cards and home loans
• How much you own on each account
• Your payment history, including on-time and late payments
• Public records like bankruptcies, tax liens, or monetary judgements
• Personal information such as your address and employer

Your credit report is sometimes called your credit file or credit history.

Where Does Credit Report Information Come From?

In the United States, three major credit bureaus collect and maintain your credit information:

• Experian
• Trans Union
• Equifax

Each bureau gathers data independently, so your reports may differ. That's why it is important to check each credit report annually and correct any mistakes.

How is Credit Report Information Used?

Creditors- the companies that make loans or give you credit, which includes banks, car dealerships, and retailers- may review your credit report with your permission. Employers and landlords may also request access.

They use your credit report to evaluate:

• Your past credit behavior
• Your likelihood of repaying future debts
• Your eligibility for loans, credit cards, or rentals

A strong credit history can help you get approved and secure better terms.

What is a Credit Score?

Your credit score is a numerical three-digit score (usually 300-850) that represents your credit-worthiness. Higher scores indicate stronger credit.

Credit scores are based on:

• 35% - Payment historty
• 30% - Outstanding debt
• 15% - Length of credit history
• 10% - Number of recent credit inquiries
• 10% - Types of credit used

Your score can change over time depending on how you use and manage credit.

How do I Monitor my Credit Report?

Once you turn 18, you can request a free copy of your credit report from each of the three major credit bureaus. If you’re under 18, a parent or guardian can request it for you. Currently, all consumers can access a free credit report from each bureau every week.

You can access your free credit reports from:
www.annualcreditreport.com
or by calling 1-877-322-8228.

Monitoring your credit helps you:

• Catch errors early
• Protect against identity theft
• Track your financial progress

Be wary of other websites that claim to offer free credit reports. Some may require purchases or subscriptions you will later have to cancel. Visit www.annualcreditreport.com to access your free credit report entitled to you by the law.

Links to Related Resources

• Tips on Building Good Credit

• For more information about credit, visit this page from the Federal Trade Commission.

• Creating a Budget You Can Live With

• Building A Savings