Clueless About Credit?

Here’s What You Need To Know

byAnde Frazier


June 6, 2019 .3 min read

Most people are familiar with credit cards, right?

But did you know that the term "credit" applies to more than just the plastic card you can use to make purchases?

Credit is your financial trustworthiness. It determines how confident a company can be in your ability and intention to pay off your debts.

If you have good credit, this is an excellent indication that not only can you claim to be financial responsibility but your credit history can actually back that claim up. In addition to that, it’s now easier for you to borrow money at a lower interest rate. Typically anything with a score of 700 and higher (on a scale of 300 to 850) is generally considered to be good or excellent.

But if you have bad credit, you might find yourself having a hard time getting a car loan, a credit card, a place to live, or even a job or car insurance.

So, where does your credit stand?

FYI, most credit scores tend to fall between 600 and 750.

Not entirely sure where your credit stands today? Check out Credit Karma – a personal finance company that gives you free access to your credit scores, reports and monitoring without actually hurting your credit.

Let’s dive a bit deeper so you can understand your credit score.

What Makes Up Your Credit Score

To determine where your credit stands, creditors look at your credit score which is based on a calculation that takes the following into account:

  • Your annual income
  • Your debt
  • Your bill payment history and any collections actions
  • The numbers and types of loans and accounts you have
  • Your credit limits and what your total debt would be if you reached your total limits

Are You a Risk?

Creditors then use your score to determine the level of risk you pose to them.

If your credit score is low, they’ll conclude that you’ll be less likely to make timely payments and more likely to default on the loan, therefore, making you a risky candidate.

Three major credit bureaus report credit scores: Experian, TransUnion, and Equifax.

What’s In a Credit Report?

A credit report will contain the following information:

  • Name, address, phone number, social security number
  • Past address(es) and employers
  • Your spouse’s name, if applicable
  • Lender names and account numbers
  • High balances, current balances, and credit limits
  • Loan terms and payment history
  • Whether you have had any charge-offs or repossessions
  • Who has requested your credit report in the past 24 months

The credit bureaus also collect information from courthouse and registry records, so your report may include any: bankruptcies, tax liens, judgments, or even criminal proceedings you may have had in the past.

Need to Correct and Improve Your Credit Report? Here’s How:

First things first, make a habit out of routinely monitoring your credit score, checking for potential inaccuracies that may arise in any of the information provided that report. In the case that you do find any errors, make sure to dispute it directly with the credit bureau that provided the report.

After you’ve made your dispute, an investigation will be opened. From there, they will advise you on how to proceed.

Once you’ve made a habit out of monitoring your report, be sure to always do the following:

  • Pay down outstanding debt
  • Pay your bills on time
  • Close any inactive accounts

Knowing Your Credit Score is Important!

Why? Because it is used to determine the interest rate and type of loan, a creditor will be willing to give you. If you are about to apply for credit - especially something significant like a mortgage - find out your credit score in advance. Then you can correct any errors and start improving your score.