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Financing 101

Used responsibly, credit can help you buy big things: a set of tires for your car, major appliances, furniture, floor coverings, riding lawn mowers, jewelry, home repairs—even a visit to the dentist. Understanding the factors that affect your credit is the key to using it wisely. Here are some credit basics you should keep in mind:

What is credit?

  • An extension of credit represents the confidence a lender has in your ability to repay a loan. Credit decisions are usually based on information obtained from credit reporting agencies about your debt and payment history.

What is my credit report?

  • Your credit report is basically a record of your payment history for each credit account you have, regardless of whether it's open or closed. Credit reports are compiled by credit reporting agencies and are used by lenders to make credit decisions.

What is my credit score?

  • Your credit score measures your current credit worthiness. It provides a lender with a quick way to assess the risk that you will not repay the loan as you agreed.

What is my credit score based on?

  • Your score is based on things like your payment history, how much you currently owe, how far back your credit history goes, the number of new credit applications you've made, and the different types of credit accounts you have.

How can I get a copy of my credit report and credit score?

  • You can review your credit report for free once a year by visiting the government-sponsored website: www.annualcreditreport.com . You can also visit www.myfico.com to purchase your credit score and credit report at any time.

How can I improve my credit score?

  • Pay all your bills on time.
    Out of all the factors that affect your credit score, late payments count against it the most.
  • Make sure the information in your credit reports is correct.
    You should check your credit reports at least once a year for errors. If you find something wrong, you should dispute it with the credit reporting agency as well as the lender that provided the misinformation. You can do that online or in a letter. The contact information for the three major credit reporting agencies can be found below.
  • Only apply for the credit that you need.
    Don't open new accounts if you don't need them. Don't apply for a lot of credit over a short period of time. Both signal lenders that your economic situation might have declined.
  • Don't use too much of the credit that is available to you.
    Your credit score can be affected if your credit utilization rate is high. Your credit utilization rate is calculated by dividing the total balance of all you owe by your total credit limit. It's expressed as a percent. According to credit experts, you should keep your rate around 30%.


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