All about credit
Part Two

In order to succeed in Maine, you must understand the U.S. financial system. It’s a challenging system to navigate, and many people make mistakes and fall into debt, which negatively impacts their financial health. Look for our articles on financial literacy each month, and tune into our podcasts for tips.

A credit report is a detailed record of your credit history and is usually the document that lenders consult when you apply to take out a loan or hope to land a job. The lenders want to know if you are reliable, and credit reports give a snapshot of your borrowing and repayment behaviors. This can influence whether you get a loan, qualify for lower rates, can rent an apartment, or be hired at a job you want. 

Credit bureaus create credit reports by gathering information from various sources, such as credit unions, lenders, and other financial institutions. The three major credit reporting agencies in the United States are Equifax, Experian, and TransUnion.

Credit reports list personal information like your name, address, and Social Security number. They also list all your credit accounts – for example, credit cards, mortgages, student loans, and all other lines of credit – along with their statuses and payment histories.  A typical credit report includes: 

Personal information: Your full name, date of birth, Social Security number, current and previous addresses, and current and prior employers.

Account information: All current and past credit accounts, including credit cards, loans, mortgages, and other lines of credit.

Credit inquiries: All the companies or individuals who have requested a copy of your credit report in the past two years. These can either be hard inquiries (initiated by you or a lender) or soft inquiries (initiated by yourself or a third party for non-lending purposes).

Public records: Any bankruptcies, foreclosures, tax liens, or civil judgments that may affect your creditworthiness.

Collection accounts: If you have any delinquent accounts that have been sent to collection agencies, they will be listed in this section.

Dispute history: If you have disputed any information on your credit report in the past seven years, it will be listed here along with the resolution of the dispute.

Credit reports exist to help lenders make informed decisions. When you apply for credit, the lender reviews your credit report to see how well you’ve managed credit in the past. Have you paid your bills on time? Are you maxed out on all your credit cards? A credit report reveals these things, enabling a more objective assessment of your risk as a borrower.

Credit reports also protect you. By providing easy access to your financial history, you can quickly identify any misuse of your information, spot fraudulent activity, or correct inaccuracies. They’re a tool for transparency and protection in lending – something both borrowers and lenders can appreciate.

Many individuals mistakenly use the terms credit “report” and credit “score” interchangeably. However, there’s a significant difference. Your credit report is a detailed account of your credit history, while your credit score – derived from the data in your credit report – is a three-digit number that summarizes your creditworthiness at a specific point in time. This can range from 300 to 850, and the higher the number, the better your credit. According to Experian, a credit score of 700 or above is generally considered good.

The credit report provides a detailed overview, whereas the credit score is a quick summary for lenders. A good analogy is that the credit report is like the script of a film, and the credit score is the star rating. Both are essential in understanding the story, but one provides more depth and context.

Checking your credit report regularly is important for many reasons. “How To Check Your Credit Report” in this issue of Amjambo Africa provides useful tips on what to look for and how to do it.

Glossary

  • Creditworthiness: Your ability to repay a debt on time.
  • Credit history: A summary of your past borrowing and repayment behavior, including information about any late payments, bankruptcies, or foreclosures.
  • Payment history: A record of your past payments on credit accounts.
  • Hard inquiry: A request by a lender or creditor to access your credit report to make a lending decision.
  • Soft inquiry: A request made by you or a landlord or potential employer to access your credit report for non-lending purposes.
  • Collection account: An account that has been sent to a collections agency due to unpaid debts; these accounts can negatively impact your credit score.

Checking your credit report is an important step toward safeguarding your financial well-being. You can spot inaccuracies, fraud, and threats to your financial stability. Here is how to check your free credit report:

Under federal law, the three national credit reporting agencies – Equifax, Experian, and TransUnion – must allow people to access their credit report for free through the Annual Credit Report Request Service. Historically, people have been able to access one free report from each of the three agencies once a year. But since the pandemic, you now have permanent access to your credit report, and can request your free report by phone, mail, or online.

The official site for viewing your free credit report online is https://www.AnnualCreditReport.com. By using this website, which is authorized by the federal government, you can get your report immediately after verifying your identity through an authentication process. Be prepared to verify your name, address, date of birth, and Social Security number. You also may need to answer questions about your existing credit accounts, if you have any. Be sure you’re accessing the exact website address as shown above – not any fraudulent websites posing as the Annual Credit Report Request Service. Imposter websites may have slightly misspelled addresses and might prompt you with emails, calls, or texts asking for your personal information. The legitimate website will only ask for your information from within the site and will not reach out to you any other way.

To check your report over the phone, call toll-free (877) 322-8228. You’ll need to go through a verification process, then your credit report will then be mailed to you within 15 days.

You can also download a request form from the official website in order to get your credit report. Just print and complete the form, and then mail it to:

Annual Credit Report Request Service

P.O. Box 105281

Atlanta, GA 30348-5281

Your credit report will then be mailed to you within 15 days.

Checking your credit report is a proactive way of protecting yourself from financial exploitation, and also provides an organized summary of all of your past and current credit accounts. You can get free weekly reports, and if you need access to your report more than once a week, you can also buy a report from each of the three national credit reporting agencies – Equifax, Experian, and TransUnion. There are other services available where you can purchase your report and also monitor your credit score, but accuracy and security can vary. Accessing your report through the Annual Credit Report Request Service or the three main credit bureaus is the safest way to stay up to date with your credit report.

All about credit
Part One

The U.S. financial system is based on credit, so understanding the various ways the term “credit” is used is key to financial success.

In this country, almost every financial move you make is recorded. Your financial history is used by one of three national credit bureaus to assess your “creditworthiness,” which is your perceived ability to borrow money and repay the balance (the loan amount + interest) that you owe over time. If someone has an excellent record of paying back loans, financial institutions say they have “good credit.” However, if the person has had problems paying back loans, or made late payments, or has no loan history at all, they say this person has “poor credit” or “no credit history.”

Credit is based on purchases you make and whether you paid them back – on time, or at all. This includes purchases made with a credit card, or through a mortgage on a house, or a loan to buy a car or go to college, or from utility companies or medical facilities. The national consumer credit bureaus compile all this financial information in a “credit report,” and these credit reports determine someone’s “creditworthiness.” The three national credit bureaus are Experian, TransUnion, and Equifax. 

The information contained in the credit reports helps to make up a “credit score,” a three-digit number that reflects creditworthiness. Lenders use this score and the details of a credit history to decide whether or not someone qualifies for a loan and at what terms, which include how much money they can borrow, the length of the loan, and the interest rate. 

A high credit score means that lenders see a person as responsible and reliable, while a low credit score may mean the person has difficulty getting a loan because the lender is not confident they will be repaid. Good credit helps a person toward financial stability and growth opportunities. For example, good credit allows you to qualify for loans with favorable terms, such as lower interest rates and higher borrowing limits. And good credit makes renting an apartment, getting a credit card, and securing a job easier. 

A low credit score can mean a lender would charge higher interest rates on a loan. Sometimes a low score could even mean having trouble renting an apartment or getting a cell phone, or could mean you can’t get low auto insurance rates. Poor credit can limit options and make borrowing money more expensive.

Having good credit takes work. Making timely payments, keeping your credit card balances low, and maintaining a mix of credit types is crucial to strengthening your credit. By being responsible with your credit, you can build a strong credit history that will benefit you in the long run. It is never too early to get started with credit. By taking out a small, secured loan or opening a small credit card, you can demonstrate good financial practices so that you are ready when you need to borrow money for an emergency, car, or home.

You may wonder if your credit is considered good or bad or what your credit score might be. Many credit unions and banks offer free credit reports and credit monitoring to their customers, and are happy to review your report with you. Or you can obtain a free report yourself every year from each of the three major credit bureaus at AnnualCreditReport.com. Reviewing your credit report regularly for errors or potential fraud is essential. 

Credit is an important part of finances in America. It allows individuals to make purchases they may not otherwise be able to afford and opens up opportunities for growth. However, it’s important to maintain good credit and take advantage of its benefits. By understanding how credit works and being proactive about managing your finances, you can set yourself up for financial success in the future.

Glossary

· Credit: This refers to the trust that lenders place in you to borrow money and repay it over time. It’s a contract in which you receive goods, services, or money now, and you agree to pay for them later. The better your credit, the more financial opportunities are available to you.

· Credit bureaus: These are agencies that collect and maintain individual credit information and sell it to other businesses in the form of a credit report. The three main credit bureaus in the U.S. are Experian, TransUnion, and Equifax. Lenders use these reports to decide whether to extend credit to you and at what interest rate.

· Credit report: A credit report is a detailed summary of your credit history, prepared by a credit bureau. This report will include personal information, a list of credit accounts, your payment history, inquiries about your credit history, and public records such as bankruptcies or tax liens. It helps lenders determine your ability to repay any future debts.

· Credit score: A credit score is a number based on an level analysis of a person’s credit files, to represent the creditworthiness of that person. This three-digit number is derived from your credit report and ranges from 300 to 850. The higher your score, the better your creditworthiness, which leads to better loan terms and lower interest rates.

The biggest factor that lenders such as credit unions and banks examine to determine a person’s creditworthiness is their payment history. This is because the lenders want to be sure a loan recipient will pay back the loan on time and in its entirety. Late, missed, and delinquent payments remain on someone’s credit reports for seven years, so lenders look at payment history over time.

One single missed credit payment should not ruin a credit score, but when lenders see many missed payments, they most likely will be concerned. The best thing to do if you have a past due payment is to try and pay it off as quickly as possible. The longer it stays unpaid, or delinquent, the worse it looks on your credit report, and the more negative its impact.

Generally, outstanding balances will be moved to collections after 30 days of nonpayment for loans, and 180 days for a credit card account. Accounts in collections are specially noted on credit reports and bring down the overall credit score. The result usually includes reduced limits on existing credit (and smaller limits for any potential future credit), late fees, and increased interest rates – all of which can quickly become a financial burden. Also, if an account has been moved to collections, the original lender may take legal action against the borrower.

Borrowers can and should take some simple measures to maintain good credit standing because these can save a lot of financial pain in the long run. For example, the automatic payment feature can minimize the possibility of forgetting and/or missing a payment due date. That way, at least the minimum payment is sure to be repaid each pay period. Another option is to mark payment due dates on a calendar, and setting reminders – possibly recurring reminders – for when payments are due. And making payments early and often is always a good idea for individuals, since getting ahead helps in the event that a borrower runs into unforeseen financial struggles.

If your credit score is low, there is no time like the present to begin to improve your score. Make a practice of regularly reviewing your credit report, make all future payments on time, pay down your debt, don’t max out your credit limit. If you follow these suggestions, you will rebuild a healthy credit file and positive credit history, and you and your family will enjoy better financial health in the U.S.