What Is Credit

WHAT IS
CREDIT?
Credit is the ability to borrow money to obtain goods or services with

the understanding that you’ll pay it back later. Credit includes things like
a personal credit card to make everyday purchases more convenient, a
line of credit for larger purchases, a car loan, or a mortgage to buy a
condo or a home.
CREDIT HISTORY
Your credit history is the record of your past and

current use of credit products, and your payments,
as well as personal information.
Your Credit Your Credit

Your Credit
History Score
Report
Your credit history and your credit score are both contained within your credit report.
CREDIT REPORT
A summary of your credit history
Created when you borrow money or apply for credit for the first time
Compiled by credit reporting agencies (e.g., Equifax and TransUnion) based on

information sent to them by your lenders. Many creditors report to just one (not both)
of the credit reporting agencies. This means your credit history and score can vary
between the reporting agencies.
Used to derive your 3-digit credit score 1
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CREDIT SCORE
A credit score, sometimes referred to as a FICO score, is like a portrait of

your financial history and it tells lenders about your likelihood of paying
back debts. The higher the score, the better your credit and the easier it
will be for you to get financing!
Many factors go into calculating your credit score

Different lenders use different methods of calculating your credit score
Typically ranges from 300-900 (Poor to Excellent)
HOW IS YOUR CREDIT SCORE CALCULATED?
Mix of Credit Length on File Repayment History

Your record of paying
How many sources How long you’ve your credit products
you’re borrowing from. had a credit back on time, which
product without helps build a good credit
Credit Inquiries missing payments. score.
Two types of credit
inquiries: hard and soft.
Repayment
Other
History
35% It's important
35%
to always make
Credit at least the
minimum
Utilization payment and
30% do so on time!
Credit Utilization
The amount you owe relative to your established credit limit on that credit
product.
Best practice is to use a maximum of 30% of your available credit limit on that
product each payment period.
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WHAT MAKES UP YOUR
CREDIT SCORE?
Repayment History
Missing a payment
will cause that
payment to be
recorded as overdue,
which has a negative Credit Utilization
impact on your Maintain your total outstanding balance
credit score. to a maximum of 30% of your established
credit limit on every reported credit
product. Sudden increases in your
spending amounts may negatively
impact your credit score. Opening a new
installment loan may have an adverse
Length on File affect on your credit utilization, until the
This means how long you’ve had a loan, balance is reduced over time.
credit card or other credit product. The
longer, the better! Keeping credit
products active for longer periods of
time may help build your credit score.
Opening a new credit product and not
using it does not help to build credit.
Mix of Credit
Having a more diverse mix of credit
products can be desirable to ensure
the best credit score. You should
Credit Inquiries avoid having all “open credit”
products – those with no set credit
Otherwise known as a credit check! limits – as these may not help you
Hard Inquiries: Credit pulls when you build credit.
apply for a new credit product. A lot of
hard inquiries in rapid succession have
a negative impact on your credit score.
Soft Inquiries: Credit pulls that do not
affect your credit score. Soft inquiries
may be requested by lenders, or could
be requested by you for your own
credit score.
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CHECKLIST FOR IMPROVING YOUR CREDIT SCORE
Make your payments

Always make at least the minimum payment and do so on time!
Use credit wisely

Try to use a maximum of 30% of your available credit on a credit product
each month
Increase the length of your credit history
The longer you have an account open and in use, the better it will be for your
credit score
Limit your credit inquiries
Applying for too many credit products in rapid succession can make lenders
think you’re urgently seeking credit or trying to live beyond your means
Use a mix of credit
Remember, some sources of credit include a credit card, car loan, a line of
credit, and a mortgage. It’s a good idea to try to use a mix of products
Manage your credit
Check your credit report regularly (soft inquiry) for errors, and take steps to
identify and correct errors with the lender and credit reporting agency
Now that you know how your credit score is calculated and the factors
that go into determining your credit score, you can take informed steps
to build and improve your credit!
ACTION PLAN
Check your credit score!
Make a list of specific, tangible

things you can do to improve
your credit score. See the
checklist above for helpful tips!
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GLOSSARY OF KEY TERMS
KEY TERM DEFINITION
Credit history is a record of your past and current use of credit

Credit
products, payments, and personal information. Your credit history is
History
used by the credit reporting agencies to determine your credit score.
Credit These include things like a credit card, car loan, student loan, line of
Products credit or mortgage.
Credit Your credit report is a summary of your credit history that is created
Report when you borrow money or apply for credit for the first time.
Your credit (or FICO) score typically ranges from 300-900 (Poor to
Credit Score
Excellent). It is derived from information in your credit report.
This is the amount you owe relative to your credit limit on a credit
product. Best practice is to keep your balance outstanding to a
Credit
maximum of 30% of your available credit on each credit product,
Utilization
each payment period.
Installment Installment is a type of credit, such as a fixed-term loan with fixed

Credit repayment amounts and a fixed repayment schedule.
Open is a type of credit, such as a cellular service, where there is no

set credit limit or set repayment. Since there is no set credit limit
Open Credit
against which to measure utilization, open credit products may not
help establish credit scores under certain scoring models.
Revolving Revolving is a type of credit, such as a credit card or lines of credit

Credit with variable repayments.
RESOURCES
Check your credit score with TransUnion®
Check your credit score with Equifax®

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WHAT IS

Credit is the ability to borrow money to obtain goods or services with

Your credit history is the record of your past and

Your Credit Your Credit

A summary of your credit history

Compiled by credit reporting agencies (e.g., Equifax and TransUnion) based on

A credit score, sometimes referred to as a FICO score, is like a portrait of

Many factors go into calculating your credit score

HOW IS YOUR CREDIT SCORE CALCULATED?

Mix of Credit Length on File Repayment History

Make your payments

Use credit wisely

Check your credit score!

Make a list of specific, tangible

KEY TERM DEFINITION

Credit history is a record of your past and current use of credit

Installment Installment is a type of credit, such as a fixed-term loan with fixed

Open is a type of credit, such as a cellular service, where there is no

Revolving Revolving is a type of credit, such as a credit card or lines of credit

Check your credit score with TransUnion®

Check your credit score with Equifax®

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