Understanding Your Credit

When applying for a credit card, personal loan or other type of credit, creditors use credit rakings and scores to help establish an expectation of your ability to timely repay debt. Based on credit experiences from your credit application and credit report, points are awarded for each factor to help predict your ability to repay the debt in a timely manner. The total points result in your overall credit score. Therefore, the higher the score, the more confidence a creditor will have in your ability repay a loan and make the payments when they are due.

Creditors use credit ratings to help determine the level of risk they are willing to take and to establish the amount of credit and type of terms for which you qualify. Most lenders use credit scores that come from the three major credit reporting agencies: Equifax, Experian and Trans Union.

A variety of factors affect your credit, including:

• Payment history
• Outstanding debt
• Length of credit history
• Recent credit inquiries
• Number and types of credit accounts

Also note that other aspects, such as employment history, are considered during the loan application process.

Credit Scores

The following chart gives a summary of generally accepted ranges for credit qualification. However, please note that each individual’s situation may be different.

720+	Very good
675 - 719	Good
620 - 674	Fair
Less than 620	Poor

What you can do to improve your credit rating:

• Pay your bills on time.
  Pay at least the minimum amount required on the date it is due.
• Minimize your debt and apply for new credit cautiously.
  Consider closing accounts you no longer use and don’t get to close to your credit card limits.
• Review your credit report once a year to ensure it is accurate.
  If you find any inaccuracies, contact the credit bureau that created the report.

If you are unable to get the terms you want or you are denied credit altogether, ask the creditor to explain what factors were considered and the best ways for you to improve your application. For example, if you were denied credit because you are too close to your credit card limits, you may want to reapply after they have been paid down. You may also want to contact one of the major credit reporting agencies to obtain a copy of your credit report to verify that all of you information is accurate.