How to Establish and Maintain Good Credit

Having good credit is important. Learning how to establish and maintain good credit will help you achieve your financial goals which may include buying a car or home, or getting a credit card or student loan. Here is what you need to know:

1. What is in your credit report?

Your credit report contains four important areas of information:

• Personal: Name, address, Social Security number, date of birth and employment information
• Credit history: Types of accounts, the date you opened the account, your credit limit or loan amount, the account balance and payment history
• Public records: Bankruptcies, foreclosures, garnishments, legal suits and judgments
• Inquiries: List of creditors that accessed your credit report in the last two years

2. What makes up your credit score?

A credit score is a number based on a snapshot of your credit report that helps a lender determine your ability to pay back debt (your score = your credit risk). Fair Isaac's FICO® scores are widely used credit scores and may be based on the following factors:

• Payment history: Looks at items such as late payments and bankruptcies. These defaults can hurt your credit score.
• Amounts owed: Considers your debt and your available credit lines. The more you owe compared to your credit limit, the lower your score will be.
• Length of credit history: Checks how long you had your credit accounts and how often you use them. A longer credit history will usually increase your FICO® score.
• New credit: Looks at new credit accounts you opened and new credit requests (such as credit cards). Multiple credit requests represent greater credit risk.
• Types of credit used: Considers how many credit accounts and how many installment-type accounts you have. A diverse credit portfolio can strengthen your report.
  

3. What does your credit score mean?

The subjective descriptions below such as Excellent, Very Good, Fair, etc. are for illustrative purposes only. Loan decisions may be based on many other factors.

4. Monitor Your Credit

• You can request a free copy of your credit report on an annual basis. AnnualCreditReport.com is a centralized service for consumers to request free annual credit reports. It was created by federal law and implemented by the three nationwide consumer credit reporting bureaus: Equifax, Experian and TransUnion.
• The Federal Trade Commission Identity Theft Website is a national resource to help you deter, detect and defend against identity theft. Consumers can learn how to avoid identity theft, and learn what to do if their identities are stolen.