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Everyone is talking about credit history, credit reports, debt levels and the importance of good credit. What does this all mean for you?

Credit Scores

Lenders look at your credit score to see how you have handled credit in the past and then use it as a predictor on how you will manage your debts in the future. It is a snapshot of your level of credit risk at a particular time. As your credit information changes, so does your credit score.

Credit scores are often called "FICO® scores" because the three major credit reporting companies (Equifax, Experian and TransUnion) in the United States calculate scores using software developed by Fair Isaac and Company. FICO® scores are calculated using data from your credit report. All the information is grouped into five categories (see chart below) and is generally weighted in importance as a part of the score calculation. Since the mix of credit history varies from person to person, so may these weighted values.

Credit scores range from 300 up to 850. Most people have scores between 600 and 800. While other factors may be considered, lenders tend to use credit scores as the basis to determine if they will grant credit and what the interest rate on that credit will be. The higher the credit score, the lower the lender's risk and the better the loan terms you will receive.

The median FICO® score in the U.S. is 663 (Time Magazine, Oct. 21, 2011).

In order for a FICO® score to be calculated, your credit report must contain at least one account which has been open for six months or more and it must also contain at least one account that has been updated in the past six months. This ensures that there is enough recent information in your report on which to base a score.


Credit Reports

Information on where you live, how you pay your bills, whether you have been sued, arrested, or filed for bankruptcy and other public records dealing with financial matters is compiled into a credit report. The three major credit reporting companies sell the information in your report to creditors, insurers, employers, and other businesses that use it to evaluate your applications for credit, insurance, employment, or renting a home.

The Fair Credit Reporting Act (FCRA) requires that each of the nationwide consumer reporting companies provide you with a free copy of your credit report, at your request, once every 12 months. You should look over your credit report regularly to make sure the information is correct, especially before making a large purchase, like a house or car. To request a copy, contact the credit reporting agencies directly or at

If you find an error, send a written letter with copies of any supporting documentation to the credit reporting company. They must investigate the dispute and respond to you within 30 days. If you are in the process of applying for a loan, immediately notify your lender of any incorrect information in your report. Once the matter is resolved, your lender will need to obtain and review your updated credit information.


Credit Tips

  • When making a credit decision, lenders may look at other factors beyond your credit score such as your income, length of your current employment and your credit history.
  • Credit scores change gradually as you change the way you handle your debt. A high score won't last forever unless you protect it with responsible credit practices.
  • Late payments will lower your score, but establishing a good track record of making payments on time will raise your score.
  • Don't open a lot of new accounts too rapidly, especially if you have been managing credit for a short time. The average age of your accounts is considered.
  • Have credit cards but manage them responsibly.
  • Closing an account or paying off a collection account does not make it go away. It will still appear on your credit report.
  • Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.
  • If you have missed payments, get current and stay current.
  • Keep balances low on credit cards and other "revolving credit".
  • Pay off debt rather than moving it around for better short term offers. Having fewer open accounts may even lower your credit score.
  • Keep unused credit cards open and try to use them every couple of months for small purchases that can be easily paid off.



Pay more than the minimum on your credit cards.





  • Persons entering college are offered an average of 8 credit cards the first week of school.
  • More than three-fourths of college undergraduate students have credit cards; most have multiple cards with an average total balance of $2,748. Ninety-five percent of college graduate students have cards; each has an average of four cards with an average total balance of $4,776.*
  • University administrators state that they lose more students to credit card debt than to academic failure. (Utah Mentor, 2003: The Voice Digital News, 2003)
  • One-half of all Americans are living from paycheck to paycheck.
  • 40% of Americans say they live beyond their means.
  • A $5,000 debt at an interest rate of 18% will take over 9 years to pay off at $94.00 per month, for a total cost of $10,129.
  • On average, the typical credit card purchase is 112% higher than if using cash.

* Statistics provided by the American Bankruptcy Institute, the Federal Reserve, and the National Endowment for Financial Education.


Here are some tools that can help you smartly manage your money:

  • - Monitor your banking accounts, set and track budgets
  • - Monitor your credit cards for fraudulent charges
Your bank may already provide these services to you, so check with them too!


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