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Credit Reports and Scores

What is a Credit Rating?

Every month, each of your lenders (your bank, department store, landlord, etc.) reports your recent credit history to one or all of the three major credit bureaus — Experian, Equifax and Transunion. The bureaus then compile and save these reports to determine your credit rating. Credit rating information that may appear on your credit report includes:

  1. Date each account was opened, current balances and credit limit
  2. Whether you paid on time or missed payments
  3. Whether your account has been turned over to a collection agency
  4. Any judgments or tax liens
  5. Any court judgments from small claims
  6. Delinquent civil and child support payments
  7. City, county, state and federal liens for unpaid taxes and bankruptcies

This credit rating creates a credit score, which is the numerical value calculated from information in your credit file. It is used by lenders and landlords to assess your “credit risk.” It helps to predict how credit-worthy you are, i.e. how likely you are to repay a loan and make payments on time

There are many reasons to learn about your credit score. Having good credit:

  • Determines whether you will be approved for auto or consumer loans. This includes private and graduate PLUS loans to pay for your education.
  • Determines whether you will be able to rent an apartment. Many landlords use your credit score to determine if you are a worthy risk and may even reduce your security deposit if you have good credit.
  • Influences the interest rates and fees that are assessed on some loans.
  • May determine whether or not an employer extends a job offer to you. Some employers use credit to assess a person's character.

Building and Maintaining Good Credit:

The two most important things you can do to maintain a good credit rating are:

  1. Paying at least the total minimum monthly payment on or before your payment due date. A history of on-time payments is one of the best things you can do for your credit.
  2. Maintaining a balance that is 20 percent or less of the overall credit card limit. Having a high credit card balance may indicate to lenders that you are a higher risk.

Staying Informed

You are legally entitled to a free credit report every 12 months from one of the three major bureaus. Make sure to request a free copy of your credit report once a year at Annual Credit Report to stay informed about what your creditors are saying about you.

You can also monitor your credit score, which is a three-digit number generated by using information in your credit report, on a variety of free websites, including Credit Sesame and Credit Karma.

You can also quickly estimate your credit score here.