Credit Matters

August 2012

Credit Matters What is a Credit Score?

A credit score is a number that strongly indicates to lenders and creditors how likely you are to pay back the debt you owe based on your past borrowing behavior. The higher your score, the more likely you are, in their eyes, to pay back the money you borrow.

Why is good Credit Important?

Your credit score is used to determine whether you can get credit for things like: a credit card, a loan to finance your college tuition, a loan to buy a house or car, or even to start up a new business. Home ownership and financial security is an important part of using credit wisely. Your credit tells a story to lenders about your ability to maintain and honor financial obligations. Therefore, it is important that you have a good understanding about obtaining and maintaining credit.

It is important to lenders how you handle past borrowers. Your credit is based on how you paid bills in the past. If you have bad credit it tells a lender that you don’t pay on time or not at all. Poor credit may also be an indicator that you may have consumer fault. Good credit is important for getting people to lend you money, but it is also just as important to get the best rates. When you want to borrow money for a car, creditors make their decision based on a number of factors, but the most important is credit history. People with good to excellent credit get lower interest rates. Remember anyone can have good credit. It is not just for the wealthy. Keep in mind that some wealthy people can have poor credit. Insurance companies will check your credit when you apply for specific policies. Credit is a privilege, not a right. If you want to borrow money you must protect it.

Obtaining a copy of your Credit Report If you want to understand how others judge your credit first get a copy of your credit report.

The Fair Credit Reporting Act is a consumer protection law that requires credit reporting agencies to allow you to get your credit report once every 12 months. Tip: There are three credit agencies. Order one every four months so you will always be able to see if something new is on your report. Under federal law you have the right to receive a free credit report every 12 months. Your credit score will vary from one credit agency to another. You can order a free copy of your credit report online at www.annualcreditreport.com or you can write the credit agencies to send you one in the mail. When you are writing the agency you must provide the following information: your full name including middle initial and generation, such as Jr. or Sr. Provide a current address and any previous addresses for the last five years. You will also need your Social Security number and verification of your current address.

Tips for Improving Your Credit There is no magic wand to improving your credit if you have a low score. The best way to improve your score is to manage your credit obligations. Here are some general tips for improving your score.

If you have inaccurate information on your credit report, get it corrected. Your credit score is not affected if you order the report from the credit reporting agency.

Pay your bills on time. Delinquent payments can have a major negative impact on your score.

Keep balances low on your credit card and revolving credit accounts.

Use credit cards responsibly.

Apply for and open new accounts only as needed.

Reestablish credit if you have had problems in the past.

For more information contact: Christopher Cotton Program Specialist crcotton@pvamu.edu Phone: 936.261.5107 Fax: 936.261.5143 The Cooperative Extension Program serves people of all ages regardless of race, color, national origin, sex, religion, disability, political beliefs, and marital or family status. (Not all classes are protected by legal statutes).