Understanding Your Credit

Credit History

Your credit history is a summary of your past financial transactions. It includes a complete list of credit cards and loans in your name, with information about each account, including the date it was opened, credit limit, and payment history.

Credit Report

Your credit report is a written account of your current credit situation and credit history, and therefore provides insight into how well you manage your money, how you pay back debts such as loans, and the status of your credit accounts. When you apply for a private loan, the bank or lender will reference your credit report and make the decision of whether or not to grant you the loan based on the strength of your credit report. If you have trouble paying back debts, you may not be approved for a loan. Additional information on credit reports can be found on the Consumer Financial Protection Bureau website.

We encourage you to request a copy of your credit report and to review it for accuracy. If any data on your credit report is incorrect, work directly with the credit reporting agency to update the information. All individuals are permitted to request a free credit report once a year from each of the three main credit reporting agencies on AnnualCreditReport.com. For more information about credit reports, visit the Federal Trade Commission site here.

Credit reports are maintained by these three credit reporting agencies, who collect your financial data from different lending entities, including banks, credit card companies, and collection agencies:

• Equifax
• Experian
• Trans Union

Credit Score

Your credit score is a calculated number based on the information in your credit report, and is intended to summarize your credit history. Lenders use credit scores as an indication of how likely you are to pay back a new debt based on prior borrowing behavior, and use it make lending decisions on loan applications.

Each of the main credit reporting agencies above calculates a credit score based on its own model. This means that you can have several different credit scores, depending on the credit reporting agency calculating each score. A separate company, Fair Isaac Corporation (FICO), has created its own credit score, the FICO score, which is the most common credit score used by lenders to evaluate credit history. MEFA uses Experian to obtain the FICO credit score. FICO uses five different data points to calculate their score, with a different emphasis on each category.

Not only can your credit score determine if you qualify for a new loan, it can also determine what interest rate you receive. For this reason, it's very important to be aware of your credit score, along with the details of your credit report, and to make sure there is nothing that is being reported incorrectly that could affect your score.

Tips to Maintain a Good Credit Score

Understanding how a credit score is calculated is important to obtaining and keeping a high credit score. Here is some advice to help maintain a good credit score:

• Pay your bills on time
• Avoid using all available credit - stay below your credit limit
• Have credit cards, but manage them responsibly 
• Avoid opening a lot of new accounts quickly, especially if you are a new credit user
• Don't apply for too much credit - apply for new credit only when needed
• Maintain your credit history with older credit cards
• Check your credit report for errors at least once a year from each credit reporting agency at AnnualCreditReport.com

Building Credit

If you don't yet have credit accumulated, you'll need to build credit. Building credit takes time, but will help you when it comes time to be approved for a loan or get a favorable interest rate. Some tips on building credit include:

• Apply for a credit card and pay your bill in full every month. If you have trouble being approved for a credit card due to lack of credit history, you may want to consider getting a secured credit card or becoming an authorized user on an existing account of a friend or family member
• Apply for a credit limit increase to improve your credit utilization ratio
• Work on paying down any outstanding loans, including auto loans, student loans, and mortgages, as that will contribute to your credit score
• Contact the credit reporting agencies to have your monthly bills, such as phone bills or rent, added to your credit report
• Make on-time payments to maintain a favorable credit score 

If you're not satisfied with your current credit score, you may need to rebuild you credit. The best way to rebuild credit is to focus on managing your credit responsibly over time. Some tips on re-building credit include:

• Review your credit report from all reporting agencies to ensure there are no errors. If you find an error, contact the reporting agency to have the error corrected
• Pay any outstanding bills
• If you are having trouble making payments, contact your creditors or a credit counselor
• Keep credit card balances low
• Pay off your debt, starting with the highest interest rate debt first