Understanding Credit

Having a good credit score and history is critical — it not only affects your ability to qualify for loans, but it also can dramatically affect the price you will pay for the interest rates on loans and insurance. Poor credit can also affect your ability to qualify for good jobs.

Learn more about what factors go into building and maintaining credit.

Reviewing your credit reports is a good way to learn if you have anything that may prevent you from qualifying for a loan and a essential way to identify and avoid identity theft.

You can request a free copy of your credit report annually — one from each of the three agencies Equifax, Experian and TransUnion.

The only website authorized to issue your free annual credit report is
Beware of other websites that claim to offer free credit reports, free credit scores or free credit monitoring.   

The type of information in a credit report includes:

  • payment histories and if payments have been made on time
  • your employment history and income
  • previous addresses
  • auto and home loans
  • public records such as bankruptcies, tax liens, and foreclosures
  • businesses requesting your credit history

Review your credit report for mistakes

If you do find a mistake in your credit report immediately contact the consumer reporting agency. Keep copies of your correspondence and your documents. If they agree that there’s an error, they have to notify the other major consumer reporting agencies.

Learn more about your free credit reports 

A FICO credit score can run from a low of 300 to a high of 850. Each of the three different credit bureaus (Equifax, Experian and Transunion) can have a different credit score

A pie chart illustrating the five factors that are included in your FICO score. The five factors are payment history, amounts owed, length of credit history, new credit, and types of credit used.

The largest part of your score (35%) comprised of your payment history. Have you paid your bills on time? If not, how late were you on those payments and how often are you late? A late payment can remain on your report from one to seven years—depending on the type of payment.

Also it’s important to remember if you’re shopping around for a loan, the lender will more than likely “inquire” and check your credit. Multiple inquiries can also affect your credit score negatively.


Building credit at first can be difficult—some creditors require you to have past credit in order to get new credit. There are some things you can do to build credit: 

  • Open a checking and/or saving account—these show you can manage money
  • Apply for ONE department store credit card which can be easier to get and as long as you make timely payments this will help your credit score
  • Deposit funds with a financial institution to serve as collateral for a credit card.
  • Offer to have someone with good credit co-sign your loan application.


These are other common lines of credit that build credit and appear on your credit report

Credit Cards

Credit cards are essentially an unsecured loan from a bank that allows you to purchase things now and pay later. Beware of high credit card fees and interest rates on credit cards because it can be very easy to get into unmanageable debt. The best way to use a credit card is to pay off the entire balance each month.

Credit cards do have some benefits — they are very useful when making online purchases, for example. Others also have reward programs that offer free airline tickets, cash back, and other perks. Additionally, showing on time credit card payments on a credit report is a great way to improve your credit score.

Before applying for a card, check the Annual Percentage Rate (APR) and make sure you know the long-term interest rate. Banks often offer a low introductory rate that is significantly lower than the eventual rate.

Always review your monthly credit card expenses and statements. Look for discrepancies. When you pay the balance in full each month you will avoid late charges.

Auto and Home Loans

Auto and home loans work a bit differently from credit cards. In order to purchase these big-ticket items, you generally have to make a "down payment" meaning that you have to pay a certain percentage of the cost of the home or auto. For these types of loans, the car or home is generally pledged as collateral. This means that if you fail to make payments, the lender is permitted to repossess the car or foreclose on your home. If your car is repossessed, you may have to pay the full balance on the loan, plus storage and towing, in order to get it back. Most lenders are willing to work with borrowers on home mortgages, as long as they believe your situation is temporary and that you are acting in good faith. If you end up in this situation, it is best to call your lender and attempt to work out a payment arrangement plan.

If you suspect you are a victim of identity theft, place a "Fraud Alert" on your credit reports. Placing a fraud alert entitles you to free copies of your credit reports. Review them carefully for any inaccurate information, including inquiries from companies you haven’t contacted, accounts you didn’t open and debts that you can’t explain.

To learn more about identity theft visit

Annual fee
the amount issuers charge to manage your credit card account for one year.
Annual Percentage Rate (APR)
the interest rate used to calculate how much in finance charges will accumulate if the balance isn’t paid in full by the due date.
the amount owed on the credit card.
Credit Counseling
services to help borrowers consolidate debt and enter into a repayment plan to help improve credit.
Credit history
the record of your previous and current debt accounts. It tells creditors how much debt you carry, how much you have available, and whether you pay on time.
Credit Report
information from a credit reporting agency about a person’s credit history.
Credit limit
the amount of debt that a customer has available to charge, usually applicable to credit cards and lines of credit.
Credit scores
this attaches a numerical value to your credit history that creditors use when deciding whether to issue new credit to you. Factors involved include total credit limit, number of credit accounts, overall credit limit, and payment history.
Debt-to-Income Ratio
this demonstrates your ability to manage monthly payments and repay debts. The debt-to-income ratio is calculated by dividing total recurring monthly debt by gross monthly income.
Finance charge
the interest charged on the amount owed.
Interest Rate
normally this is a low introductory rate used in credit card advertising that later switches to a higher variable or fixed rate.
Introductory (teaser) rate
the cost of borrowing money, a percentage of the total money borrowed.
Minimum payment
the minimum amount you can pay without the account becoming delinquent. This normally is only 2% of the existing balance.
Predatory lending
unfair, deceptive, abusive, coercive, or fraudulent practices convincing a borrower to take out a loan that they can’t afford or doesn’t need.
the amount borrowed on a credit account before any interest, fees, or finance charges are applied.
Transaction fees
many creditors charge fees for late payments, exceeding credit limits, or using a credit card to get cash. Creditors may have other fees as well.