Credit Basics

Lenders use credit scores along with other criteria such as income, employment status and amount of outstanding debt to help determine whether to approve loan applications and at what term and interest rate. In addition, other businesses such as utilities and landlords may use credit scores to better understand if a person is likely to pay bills on time. Having access to credit means you can buy something today and pay for it later. This ability to borrow gives you flexibility in planning your purchases and makes it possible for a large purchase over time. So, you use credit wisely and only borrow money to make necessary purchases. The purpose of this page is to help our customers understand how to make good decisions and manage credit wisely when faced with credit related choices. 


The key is to understand the bigger picture. Every time a person uses credit, it has an impact on their credit files. This includes paying for a meal with a credit card or taking advantage of a low interest car loan. It is critical to understand that each person's credit history is completely unique. So, the impact of a decision made when handling credit is unique to that person. However, there are some general guidelines that do apply. It is important to be a good credit manager and focus on making prudent decisions based on one's own financial situation. 


​There are typically three facors that credit agencies use to determine your credit score, which determines your eligibility for a loan. These factors are typically referred to as the three C's of credit. They are character, capacity and collateral. Let's take a look at each. Character​ is how you have handled debts in the past. Do you pay bills on time, pay lenders off early or carry a balance month to month. These trends predict how you will handle debt in the future. When lenders look at your credit character, they look at payment history, lengths of credit history, and types of credit used. Capacity​ is based on your income and other debt responsibilities (credit cards, car loans, mortgage and more). Lenders determine whether you can afford an additional loan. They also take into account amounts owed on different accounts, how much available credit you have, new accounts and how many lines of credit you've applied for recently. Collateral​ is something of value (like a car, property, or jewelry) that you can pledge as security for repayment of a loan. If you do not repay the loan they will sieze your collateral. These three factors form the basis of your personal credit file. Based on these factors, credit agencies assign you a FICO credit score


​What is a Credit Score and How is It Used?

​A FICO score is a type of credit score created by the Fair Isaac Corporation. Lenders use the borrowers' FICO score along with their details on borrowers' credit reports to assess credit risk and determine whether to extend credit. ​A consumer's credit score is typically a 3 digit number and it ranks a consumer's likelihood to pay his/her debts compared to all other consumers. A higher score means that a person is more likely to pay their debts and a lower score means that a person is less likely to pay their debts. A FICO score ranges from 300 to 850. Mortgage lenders, auto lenders and credit card issuers may use credit scores to help determine whether a person can qualify for credit and what interest rate they might have to pay. These scores are derieved from credit file information.


​A credit file is information such as a person's history of payment punctuality, the total amount of available credit, the total amount and type of debt a person has, the number of open accounts, and the longivity of a person's relationships with creditors. This information is compiled by the credit reporting agencies (CRCs)-Equifax, Experian and Transunion. Lenders and other organizations report this information to them. 

What Influences a Credit Score?


​Generally, there are a number of characteristics that contribute to credit scores and ways to build and maintain a good score. The following table describes those characteristics along with tips for good credit management:

Characteristic​ Description Maintaining a good credit score
Payment History Repayment behavior (current, late or charged off) Pay all bills on time.
​% of Credit Limit Used Proportion of credit amount used/owed on accounts   Keep revolving balances low, under 30% of credit limits
Total of Balances Total amount of recently reported balances (current and delinquent) Reduce the amount of debt owed
​Age and Type of Credit Length of credit history and types of credit A mix of accounts (credit cards, auto, mortgage) and a longer history will improve a credit score.
​Recent Credit Number of recently opened credit accounts and credit inquiries Don't open too many accounts too quickly
​Available Credit Amount of credit available   Only open the amount of credit needed


​How to Improve a Credit Score


There are several ways to improve a credit score. However, the score is actually a reflection of a person's credit report. So, it is important to learn what is in a credit report and focus on that rather than obsess over the credit score. Improving one's credit score can be achieved over time by regularly practicing these sound financial techniques:


  • Pay bills on time.
  • Apply for credit only when it is needed. Do not open new accounts frequently or open multiple accounts within a short time.
  • Keep outstanding balances low. A good rule of thumb is not to exceed 30% of available credit limit with each account.
  • ​Pay any delinquent accounts as soon as possible and then keep them current.
  • ​Everyone has the right to obtain their credit reports for free through the website This website also provides instructions for how to make corrections in the event that there is an error on the credit report. Recommendation is to get one report from a different credit agency every 4 months. 


Credit Agencies and Credit Reports


​To determine your credit worthiness, potentail lenders will acquire your credit report from credit agencies. You have the right to request a copy of your credit report at anytime and can get one free from each agency once a year. The three credit agencies are:



P.O Box 740241

​Atlanta, GA 30374-0241




P.O. Box 949

Allen, TX 75013-0949



P.O. Box 390

Springfield, PA 19064-0290



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