Credit

Using credit wisely

Credit represents:

• Your ability to borrow funds for purchasing necessities or luxuries.
• The basis on which you may be evaluated on your ability to fulfill financial responsibilities.

What is a credit report?

A credit report is a record of your credit activities. It provides lenders with information, including:

• How much credit you are using
• How much credit you have available
• Your payment patterns (on time, late)
• Your outstanding debt at a given point in time
• Any efforts taken against you because of unpaid bills, late payments or bankruptcy

Who generates credit reports?

• Consumer reporting agencies (CRAs) collect information about your credit activities.
• CRAs store this information in databases and may charge a fee for supplying it.
• The most common CRA is a credit bureau.
• Three major credit bureaus operate in the U.S.:
  • Equifax, Experian and TransUnion
   

How do I get a copy of my credit report?

• You may receive one free credit report every 12 months from each of the nationwide consumer reporting agencies.
• Visit annualcreditreport.com
• For security purposes, request that your Social Security number be obscured from the reports.
• Be sure to download a copy at least every 12 months to ensure it’s accurate.

What is a credit score?

• Your credit score, or FICO score, is used by lenders to determine if you are creditworthy.
  
• Since lending money to someone is a risk, credit scores allow lenders to evaluate borrowers.
• The score is based on the data in your credit report, which is a record of your borrowing history.
• The scale ranges from 300 to 850, and the higher your score the better¹.

What's the optimal credit score? ²

In general, the higher your credit score, the lower the interest rate you’ll pay (think mortgages, car loans and credit cards). Work to get your credit score as high as possible.

• Exceptional: 800-850 (21% of population)
• Very Good: 740-789 (25% of population)
• Good: 670-739 (21% of population)
• Fair: 580-669 (17% of population)
• Very Poor: 300-579 (16% of population)

How do I increase my credit score?

• Live within your means.
• Pay all of your bills on time.
• Open a savings or investment account and regularly fund it to demonstrate financial stability.
• Pay your credit cards in full in each month.
• Try not to use more than 35% of your available credit.
• Try not to open unnecessary or numerous new credit cards.

What contributes to a credit score? ¹

The score is calculated based on your:

• Payment history (35%)
• Amounts owed (30%)
• Length of credit history (15%)
• New credit (10%)
• Credit mix (10%)

How do I protect myself from credit fraud?

1. Download your credit report every year and correct any errors.
2. Don’t carry your social security number with you, and don’t give it out unless you’ve initiated the phone call and are in a private location.
3. Keep a written record of all of your account numbers in a secure place.
4. Do not keep user names and passwords on your phone - use a password protection app.
5. Check all bank and credit card statements for accuracy.
6. Shred any documents with personal information that you do not need to keep.
7. Install virus protection software on your computer.

How you manage credit is critical to your ability to borrow going forward. If not managed wisely, credit can create a financial burden and the loss of significant wealth.