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Building and Maintaining Good

Credit

Credit is the concept of borrowing money to buy big

purchases or fulfill needs with the intention based on trust that the payment will be made in full in the future

Your credit history (your record of paying back debts) is the most important factor that lenders consider when you apply for a loan

Your credit score is the three digit number that you receive based on several factors that will determine if you receive the loan, get a better interest rate, etc.

Using your credit score, lenders can determine to some accuracy how likely the loan is to be repaid and make payments on time

What is the importance of credit?

Payment History (35%) this includes time since

the event, number of missed payments, how bad was the blunder;

How much you currently owe (30%): If you already have high debt, then this will count negatively against you

How long you have had credit (15%): The length of how long you have had credit will either negatively or positively affect your credit; for example, you have had a credit card for a long time andt with no late payments, that will count positively. If you don’t have any history, or short term history, this can count against you.

Factors that affect Credit Decisions:

Your last application for credit (10%):

How long was it that you applied for credit? A recent application will count negatively, as it shows a need for money

Types of credit you are using (10%); revolving credit and installment loans are the most common types. Revolving credit is usually credit cards, while installment loans are like mortgage payments. To optain a high credit rating, companies look for a blended mixture of revolving and installment credit.

Factors that affect Credit Decisions:

Your credit score is used to determine whether or

not you get a loan you apply for, and at what type of interest rate you may have to pay

Usually, the lower the credit score, the higher the interest rate or the lower the chance of getting the loan

The credit score is compiled by three major credit companies

Your credit score is not the sole factor that determines loan success or failure, but it is important to maintain, because more and more industries are using the credit score to determine premiums, interest rates, and loan acceptance

How is your credit score used?

How can you maintain and/or improve your

score? According to financial advisors, here are the

steps to take to improve your score: 1) Review your credit report and correct any

errors you find 2) Keep old credit accounts, even if you are not

using them (age of your accounts can affect the score)

3) Reduce your balances on credit cards to 75% or less of the available credit (25% is preferred)

4) Pay your bills on time

5) Don’t let anyone make an inquiry on your credit

report unless you absolutely have to 6) Don’t just open a bunch of credit card

accounts right before you apply for a big loan in order to increase your credit amount; this is will impact your score negatively at first

How can you maintain and/or improve your

score?

1) SPEND ONLY WHAT YOU CAN AFFORD!! 2) Pay off your balance or keep it low 3) Pay your bills on time 4) Pay more than the minimum due 5) Avoid taking cash advances 6) Review your monthly statements 7) Monitor your credit reports

Credit Card Use Hints: