Credit 101

There are lot's of definitions of "credit," but the one that should be most important to you is "financial trustworthiness." It is defined as confidence in a borrower's ability and intention to repay.

So, when you're ready to rent an apartment, apply for a credit card, buy a car, the lender will look at your credit history. Therefore, it's important that you monitor your credit score.

Are credit scores important?

What do lenders review?

Lenders review your credit report for a few key pieces of information that will tell them if you are worthy of receiving a loan, or if you're a credit risk. They look at:

• Your credit score – Your score is going to be the key predictor, for a lender, of your ability to pay your debts long-term.
• Your credit balances – How much debt do you currently have? Do you have any outstanding credit card balances? Are you paying them down regularly?
• Your total available credit vs. How much you owe – Carrying a regular balance of $1,000 on a credit card with a $5,000 limit is more desirable than carrying a balance of $4,500 on that same card.
• • Your Debt-to-Income Ratio (DTI) – Lenders look at the percentage of income that goes towards all of your recurring debt payments, rent, credit card payments, car loan payments, student loan payments, etc.
  • The higher your DTI, the less confident a lender will feel that you will be able to pay the loan on time.
  • Late payments – Are you late on all of your payments, or only some of them? Were you late because you were in between jobs or have they been constant over time?

Believe it or not, falling behind and not being able to catch up is viewed better by a lender than being sporadically late on your bills.

What is a credit bureau?

Credit bureaus collect and analyze your loan and other credit use data. They collect this information from your creditors (banks, credit card companies and other merchants), or bill payment companies, and use it to develop your credit report and score.

Do Credit Bureaus all have the same information?

Each credit bureau has different information. Not all lenders will report your payment history to each of the "Big 3" credit bureaus. So, before freaking out that your score may vary from bureau to bureau, make sure you check each one for errors or older data that may exist in different reports.

Can I get a copy of my credit report?

The credit bureaus are required by law to make your credit history available to you. Although you can enroll in services such as, FreeCreditScore.com to monitor your credit reports for a monthly fee, you are entitled to request a FREE report from each of the "Big 3" credit bureaus annually. Keep in mind, a free report will NOT include your credit score, just your payment history.

Who are the credit bureaus?

Experian Information Solutions | www.experian.com

Experian is a global leader in consumer and business credit reporting and marketing services. They support clients in more than 65 countries.

Equifax Information Services | www.equifax.com

Equifax Inc. is a consumer credit reporting agency in the United States, considered one of the three largest American credit agencies. Equifax gathers and maintains information on over 400 million credit holders worldwide.

TransUnion Consumer Disclosure Center | www.transunion.com

TransUnion is a global leader in credit and information management. They work with businesses and consumers to better understand and manage credit so they can achieve their financial goals. TransUnion supports more than 50,000 customers and more than 500 million consumers worldwide.