Credit Guide w/ current Loan Average Rates*:
What You Should Know About Credit
For generations, owning a home has been a big part of the "American dream."
One key you need to realize this dream is developing and maintaining a good
credit score.
What is credit?
When you borrow money, you are given credit by someone / a company...Credit
simply means you are using someone else’s money to pay for things. Getting
credit also means you are making a promise to pay the money back, usually with
interest. Interest is additional money you pay for the privilege of borrowing
money.
Why is having good credit so important?
Establishing and maintaining a good credit history helps you get a loan, on
better terms, when you want one. In addition, it puts you in the driver's seat
when shopping for loans. When you have good credit, you are more likely to receive
favorable loan terms and pay less interest than someone who does not have a
good credit history.
Why not pay with cash?
Paying cash for things such as clothes and household items is generally a good idea. However, using credit cards for larger purchases, such as an appliance, can help you when you first establish credit. Making monthly payments and paying off balances in a timely manner will provide you with a good credit history that will help when you need to make larger purchases, such as cars and homes.
Does it matter how many credit cards I have?
Yes. Every credit card company allows you a specific amount of money to spend.
This is called a credit limit. Having numerous credit card accounts open, however,
may affect your ability to get a loan. Although the accounts may have low or
no balances, a potential lender considers all available credit limits when deciding
if you would be a good credit risk.
What happens if I don't make payments on time?
Making payments late costs you money. Each time you pay after your due date,
you may have to pay penalties or late fees. In addition, a history of making
late payments may ultimately cost you by having to pay higher interest rates
on subsequent loans.
How are late payments defined?
Generally, a payment is considered delinquent if it's received 30 days past
its due date. A mortgage payment, however, is considered late when it's received
15 days after its due date. If an account is 60 or 90 days late, it's considered
a serious delinquency. When applying for a mortgage, it is preferable not have
any late rent or mortgage payments in the past 12 months since that could affect
your interest rate.
How does a potential lender know if I have good credit?
The primary source a potential lender uses to evaluate your credit is a credit
report. When you open a new credit account or borrow money, the company you
do business with may report information about your repayment history to one
or more credit-reporting agencies. The credit-reporting agencies, in turn, make
this information available to potential lenders.
What appears on my credit report?
The typical credit report includes four types of information: personal information,
credit information, public record information, and inquiries.
The personal information includes your name, current and previous addresses, telephone number, Social Security number, date of birth, and current and previous employers.
Credit information includes the date opened, credit limit or loan amount, balance, and monthly payment amount for all loans and lines of credit. The report also shows your payment history during the past several years and the names of anyone else responsible for paying the account, such as a spouse or a co-signer.
Public record information includes any bankruptcy records, foreclosures, tax liens for unpaid taxes, and monetary court judgments (such as lawsuits).
Inquiries show when someone has obtained a copy of your credit report and every time you have applied for credit in the past two years. The number of inquiries on your report is important to your potential lender, particularly if you have had several recent inquiries. A lot of inquiries might indicate a danger of becoming overextended on your credit.
Can I get a copy of my credit report?
Yes. In fact, you should request a copy of your credit report at least once
a year to verify that all the information is correct because reporting mistakes
might occur. To get a copy of your report, call or write to one or more of the
following credit-reporting agencies.
Trans Union Corporation
P.O. Box 34012
Fullerton, CA 92834
1-800-916-8800
www.transunion.com
Experian (formerly TRW)
P.O. Box 2104
Allen, TX 75013-2104
1-800-682-7654
experian.com
Equifax
P.O. Box 740256
Atlanta, GA 30374
1-800-685-1111
www.equifax.com
The information on your credit report may vary from one credit-reporting agency to another because not all creditors report information to each agency. For this reason, you may want to get a report from each agency. Depending on where you live and your circumstances, you may have to pay a small fee for a copy of your credit report. There are services that can do this for you all at once.
How does a potential creditor evaluate the information on my credit
report?
Most creditors, including mortgage lenders, use a credit score generated from
information on your credit report. A credit score is a statistical measurement
used to predict how likely you are to repay a loan based on experience with
millions of consumers. As a result, it provides a fast and objective way to
evaluate your credit history.
What factors influence my credit score?
Any action you take regarding your credit practices influences your credit score.
For example, if you regularly make payments on time every month, that will positively
influence your score. Conversely, if you tend to maintain maximum balances on
your credit cards, and make minimum payments, whichwill negatively influence
your score. At any given time, your credit score is calculated by weighing all
positive and negative points.
What is a "good" credit score?
Generally speaking, when you have a high score, you are considered a better
credit risk. The specific range of scores depends on the credit scoring software
used and the guidelines established by the lender. A typical range of credit
scores, however, usually falls between 500 and 800. A credit score that falls
between 650 and 800 is more favorable.
Can I change my credit score?
Yes, in fact you are the only person who can change your credit score. If you
have scored poorly, you can make a concerted effort to improve your score by
paying off loans, reducing credit card balances and making monthly payments
on time. After a period of time, generally a year or two, such positive practices
will be reflected in your credit score. There are also services that can assist
you with this.
Does a lender take anything else into consideration when I apply for
a loan?
Yes, although lenders rely heavily on credit scores, other factors are taken
into consideration. Included in your evaluation may be your job history, income,
savings and checking accounts, the types of loans you currently have, and the
type of loan you are looking for.
What can I do if I don't have credit?
If you don't have credit as reported by the credit-reporting agencies, most
lenders will accept other sources of credit. Other sources or "alternative
credit" includes bills that you have paid on a regular basis, such as rent,
utility payments, cable TV, or monthly insurance payments. Any of these creditors
should be able to provide you with a "credit reference" to document
your payment history.
Can I "start over" by declaring bankruptcy and clearing away
all my old debt?
Declaring bankruptcy does not automatically allow you to "start over."
If you have declared bankruptcy, had a car repossessed, had a house foreclosed
on, or have not paid a loan, it will likely have a major effect on your ability
to get a new loan. Information about a foreclosure or repossession can stay
on your credit report for seven years and a bankruptcy from 7-10 years.
Can someone help me "fix" my credit?
If you are having problems paying your debts, you may want to seek help from
a not-for-profit credit counseling organization. Such organizations can work
with you and your creditors to set up repayment plans at little or no cost.
*Not legally liable for any reliability of any posted rates, this should be used as a guide only
Current Rates/Averages