Why is My Credit Important?
Your credit history says a lot about you. It demonstrates whether you’ve made paid your bills as agreed or whether you have a history of defaulting on debts.
As a consumer, you’ll find that your credit history can dramatically impact the amount you pay for goods and services. As an example, the below listed table shows the average interest rate for vehicle loan by FICO score:
||Total Interest Paid
|Note: Dollar impact calculated for a 48 month loan on a $25,000 car.
Understanding My Credit
When you purchase goods or services without immediate payment, you’ve created a debt. To assess the risk of you not repaying the debt, lenders frequently examine your credit history, which contains information on whether or not you've repaid your debts in the past. If you've reliably repaid your debts in the past, you'll find that lenders are more willing to offer you credit at favorable rates.
Generally, lenders review your credit report provided by one of the three major credit reporting agencies - Equifax, Transunion, and Experian. The federal Fair Credit Reporting Act requires each of the nationwide credit reporting agencies to provide you with a free copy of your credit report, at your request, once every 12 months.
Important! There’s only one online authorized source for obtaining your free credit reports—www.annualcreditreport.com— beware of other sites that may look and sound similar but may require you to purchase other services to receive a “free” report.
If you have experienced credit troubles, visit the Federal Trade Commission at www.ftc.gov and download their pamphlet “Credit Repair: How to Help Yourself.” Another useful website is the National Foundation for Credit Counseling at www.nfcc.org.
For more in-depth information on credit, finances, and consumer information, visit the Federal Trade Commission website at www.controlyourcredit.gov.
Credit Scores and Reports
Potential creditors use the information on your credit report to calculate your credit score. Your report includes;
- Personal information including reported employment
- Account information or trade lines
- Public records information
Sometimes people think that no credit is the same as good credit… not always. Establishing a positive credit report can help you in
- qualifying for credit when you need it
- qualifying for lower interest rates (see the impact it can have above)
- being approved to rent an apartment
- landing a job
As you prepare to head off to college or your first job, it is important to begin establishing a good credit record:
- develop a budget and pay all your bills on time.
- don’t apply for credit needlessly and only borrow what you need