Credit FAQ
How do I establish credit?
An easy way to start establishing credit is to open a credit card. However, you must manage it properly to ensure you establish good credit and don't incur unnecessary debt. Utility bills and cellular phone bills will also help you establish a credit history.
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How does a credit check work?
When you apply for a loan, mortgage, credit card, or even or job you may need to complete and sign an application that grants an agent the authority to access your credit report. Based on your credit score and other information on your credit report, you may be accepted or rejected for a loan or purchase. Some employers view a credit history as an indicator of employee performance.
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What is a credit score?
A credit score is a statistical figure used by creditors and other agents to determine a person's creditworthiness and probable ability to repay debts. Your credit score is based solely on information in your consumer credit report maintained at the credit reporting agencies. Credit scores such as FICO scores (the most common credit scores, developed by Fair Isaac) may range from 300-850. The higher your score, the more creditworthy you are. Persons with the highest credit scores are often entitled to savings such as lower interest rates or reduced fees. Information on your credit report that may affect your credit score includes, but is not limited to, payment history, amounts owed, length of credit history, new credit, and types of credit used.
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What is a creditworthy applicant?
A creditworthy applicant is an applicant or co-applicant whose FICO score or other credit information exceeds a lender’s cutoff for approval.
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What is a credit-ready applicant?
A credit-ready applicant is someone who has not yet established a credit history; many students do not have credit histories. Opening a credit card and making regular timely payments is a good way to start establishing credit.
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How can I check my credit history?
The Fair and Accurate Credit Transactions Act of 2003 is a United States federal law that allows consumers to request and obtain a free credit report once every twelve months from each of the three nationwide consumer credit reporting companies, as listed below. In cooperation with the Federal Trade Commission, the three major credit reporting agencies set up a website, annualcreditreport.com, to provide free access to annual credit reports.
Experian 800.397.3742 www.experian.com
Equifax 800.685.1111 www.equifax.com
TransUnion Corp. 800.888.4213 www.transunion.com
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Do I have the right to free credit scores?
No, you must pay a "reasonable fee" to obtain your credit score. The current price range for a credit score is $9.95 to $15.95.
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What is derogatory credit?
Derogatory credit can be the result of any number of transactions on an applicant's credit report that show unfavorable credit and/or payment history. Examples of derogatory credit are as follows:
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How can I improve my credit score?
- Correct any mistakes on your credit report. You can do this by reviewing your credit report annually from each of the three national credit bureaus and contacting your creditors about errors. Keep in mind it can take up to 3 months to get errors corrected after you dispute them.
- Reduce your credit card debt. The amount of money you owe on your credit card vs. your credit limit can affect your credit score. By lowering the ratio of debt to available credit, you can improve your score.
- Make on time payments.
- Pay attention to the tips on how to improve your credit score on your annual credit report.
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How is my debt-to-income ratio calculated?
Debt-to-income ratio is calculated by dividing your monthly payments on all loans and credit lines (often times, this includes your rent) by your gross monthly income. Acceptable debt-to-income ratios tend to be below 50 percent.
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How do I maintain/establish good credit?
- Pay your bills on time.
- Avoid defaulting on your loans.
- There are options available to you to help reduce student loan payments, such as extended repayment. Deferment or forbearance might also be available to you. If you are having trouble making payments on your student loans, make sure to contact your lender immediately to learn about available options.
- Regularly monitor your credit report. You many obtain a free credit report each year at www.annualcreditreport.com. Monitoring your credit report allows you identify mistakes and identity theft early on. Dispute all errors.
- Limit the number of lines of credit you have in your name, especially revolving lines of credit, such as credit cards.
- If you are able to, pay off entire credit card balances each month. If not, pay as much as you can per month, even if it means making some sacrifices.
- Avoid bankruptcy.
- If you are maintaining balances on more than one credit card, avoid maxing one out while maintaining a very low balance on another. Try to keep moderate balances on each.
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Who can I contact if I need more help with my credit?
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