Credit 101
Maintaining strong credit can demonstrate financial responsibility, which can enhance trust with lenders.
What is Credit?
Credit is your ability to borrow money or access goods and services with the promise to repay later. It often comes with interest or fees.
Why Does It Matter?
It may impact your ability to secure
Loans
Rent Housing
Credit Score
Your credit score is a number reflecting your creditworthiness. The higher the better.
Key factors that impact your score:
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Payment History: Your record of paying bills on time.
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Credit Utilization: The ratio of your credit card balances to your credit limits.
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Length of Credit History: The average age of your credit accounts; longer is best.
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Credit Mix: A variety of credit types, such as credit cards, mortgages, or auto loans is ideal.
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Outstanding Debt: The total amount you owe across all accounts.
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New Credit Inquiries: Frequent applications for credit can temporarily lower your score.
Obtain Employment
Lower Interest Rates
Credit Report
Your credit report is a detailed record of your credit history (accounts, payment history, and inquiries).
Key items on your credit report:
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Personal Information: Name, address, Social Security number, and date of birth.
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Credit Accounts: Details about your open and closed accounts, such as credit cards, mortgages, and loans.
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Credit Inquiries: Records of when lenders or others have accessed your report ( “hard” or “soft” inquiries).
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Public Records: bankruptcies remain on credit reports for up to ten years. Most civil judgments and tax liens were removed from credit reports starting in 2017 under the National Consumer Assistance Plan, but a small number of items can still appear in this section.
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Collections: Accounts sent to collections agencies due to missed payments.
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Payment History: A record of your on-time and late payments.
Building Credit
Tips for Building Good Credit
*The information provided on this website is for educational purposes only and should not be considered financial advice; before making any credit-related decisions, consult a qualified financial professional.
Where to Start, No Credit History
When first attempting to establish credit consider:
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Applying for a secured credit card.
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Become an authorized user on a trusted family member’s credit card.
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Take out a credit-builder loan from a bank or credit union.
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Use a rent or utility reporting service to add positive payments to your credit report.
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Open a store credit card or a small-limit card that’s easier to qualify for.
Where to Start, Poor Credit History
When first attempting to establish credit consider:
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Check your credit report for errors and dispute any inaccuracies.
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Prioritize past-due accounts by paying off the most overdue debts first.
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Negotiate with creditors to set up payment plans or request goodwill deletions.
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Keep credit card balances low to improve your credit utilization ratio.
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Avoid closing old accounts—keeping them open helps maintain your credit history.
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CFPB guide to building credit from scratch
Improving your credit history takes time. Consistent on-time payments and low balances tend to move scores in the right direction over months and years, not days.
Credit Freezes
Freezing credit may help protect against identity theft and fraud.
Why People Freeze Their Credit
By restricting access to your credit report, you make it harder for unauthorized individuals or businesses to open new accounts or take out loans in your name. A credit freeze is free under federal law and can be lifted temporarily whenever you actually need a new account.
This is a free and practical step people can take to give you peace of mind.
How to Freeze Your Credit
Things to keep in Mind:
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This works like a light switch... toggle them on an off when you need them.
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Each credit reporting agency has a different term for it, but it should always be free!
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Report identity theft and start a recovery plan at IdentityTheft.gov