Ever wonder why you secured an auto loan at a lower interest rate than your co-worker or why you might qualify for a higher credit card limit than someone else. That’s because you have solid credit and lenders feel comfortable loaning you money and are confident you will be able to pay it back. However, credit isn’t always good. Many people—too many—have bad credit from past borrowing history and bad credit can make it hard to buy a car, get a home mortgage, rent an apartment or get a credit card. Bad credit can make you prey to lenders looking to make some big money off of your financial challenges.
Good credit or bad credit refers to your credit worthiness. That is a lender’s assessment of how likely you are to repay your debt. Good credit or bad credit is based on your credit score, which is generated based on your borrowing history, or more specifically, your history of paying back money you have borrowed. When you turn 18 and are considered a legal adult, you have neither good credit nor bad credit; you are credit invisible. You can build good credit by opening a credit account such as a credit card or a loan and making payments on time and in full each payment cycle. Conversely, you can saddle yourself with bad credit by being late on payments or not making payments at all. (Paying the minimum amount due doesn’t hurt your credit but it doesn’t help you build better credit either.)
Credit scores are generated based on a person’s credit report from one of the three credit bureaus—Experian, TransUnion, and Equifax. Credit scores generally range from 300 to 850 with the higher the score the better the credit. The reports are based on:
- payment history
- how much you owe
- your history with credit accounts
- your experience with different types of credit
- recent credit activity
Credit scores are generated by two scoring companies—FICO and VantageScore—and while there might be slight differences in their credit scoring, both hold true to better creditworthiness earning a higher credit score number.
If you have good credit, protect it! If your credit score could stand to improve, there are things you can do:
- Pay your bills on time
- Pay down credit card debt
- Make credit card payments early
- Bring past due accounts current
- Review your credit report for errors
By law, everyone is entitled to a free credit report each year from the three credit bureaus. This is the best way to monitor your credit. You can request the credit reports through Annual Credit Report, the only source authorized by the federal government, by visiting AnnualCreditReport.com, calling 1-877-322-8228 (TTY: 1-800-821-7232) or filling out the Annual Credit Report request form and mailing it to Annual Credit Report Request Service; PO Box 105281; Atlanta, GA 30348-5281.
Remember, BHS, our employee assistance program, is available 24 hours a day, 7 days a week to provide counseling and support on anything that may be causing you concern, including work-life issues such as financial stress. Reach out to BHS’s mental health professionals at 888-784-5665.