Credit History

Credit History

Poll

How well do you know credit history?

• 1 (not much at all)

• 2

• 3

• 4

• 5 (Expert)

Using Lenders

At some point, you are going to want to buy something BIG, and you won’t have enough money to pay for it all at once. We’re not talking about the newest iPhone, but a car or a house. Most people have to go through a lender to purchase things when they don’t have enough money to buy them outright. A lender is typically a bank. You borrow the money with a credit card or through a loan. By using a lender, you can buy the big item and pay back what you owe slowly.

Lenders are more likely to grant money to a person they believe can pay them back. If you have good credit, you won’t have a hard time borrowing money. But if you have bad credit, it might be difficult. To find out what kind of credit you have, lenders will look at your credit report.

Multiple Choice

A person would most likely need to use a lender in order to...

• buy milk at the grocery store.

• buy the newest iPhone.

• apply for a credit card.

• buy a house.

Credit Report

A credit report is a record of money you've borrowed. It’s updated monthly and lists the amount of debt you carry, your repayment history and any problems you’ve had with your debt.

Credit reports include your credit score. Your borrowing history contributes to your score, and the number of times you’ve requested the report also contributes. Some lenders see a lot of credit report requests and get suspicious. It could mean you’re desperate and keep getting denied because your credit is poor.

Your credit score is a number that ranges from 300 to 850. Technically, it’s called your FICO score. It’s named for the company that created the software that generates the score. If your score is higher than 750, it will be easier to borrow money and to do so at low or fixed interest rate. If your score is 640 or lower, borrowing money becomes harder and more expensive.

Multiple Choice

A person with a credit score of ________ would have the easiest time borrowing money.

• 700

• 800

• 300

• 720

Raising your credit score

How do you raise your credit score? First, pay your bills on time. Second, if you are in debt, get a plan to have that resolved as soon as you can. What lowers your score? Making late payments or missing payments altogether and going into delinquency. Keeping debt that is more that 30% of your credit limit is also bad for your credit score, so don’t max out your credit cards. However, reasonable debt is good for your score.

If you never borrow money and don’t have a history of credit, and a history of paying it back responsibly, lenders don’t know that you’re financially responsible, and you will have a hard time getting approved for a loan or a line of credit. To build good credit, get a credit card and use it to purchase things that you can afford. Always pay the full balance each month, on time.

Multiple Choice

If Lily wants to build her credit, she should

• get a credit card, purchase things with it, and pay the full balance each month, on time.

• get multiple credit cards, purchase things with all of them, and only one of their bills each month.

• borrow money from her parents or friends.

• save up money so she can buy big purchases in cash.

Who else looks at your credit?

Banks aren’t the only people who will check your credit; landlords usually look at it to determine whether you’re financially trustworthy, and future employers might consult it when they’re deciding whether or not to hire you. Your credit history will affect many aspects of your adult life.

You can check your credit report for free once a year. Just visit annualcreditreport.com, and you can see what banks, lenders and other financial institutions see when they run a credit check on you. This will help you understand where you stand with lenders, and it can help you figure out what to do to raise your score. Additionally, you should check to see if the information they have is accurate. If it’s not, you can work to correct any mistakes that might affect your borrowing power. By taking advantage of this free information, you have better control over your credit history—and future.

Multiple Choice

If Chiwan’s credit card applications keep getting denied, he should check his credit report. This will help him

• automatically re-apply for credit cards.

• figure out how to raise his credit score.

• erase his credit card debt.

• hide any history of bad credit.