Credit Basics: What You Should Know

Whether credit is helpful or harmful depends on how it's used. TCU answers basic credit questions to help you take advantage of the benefits without falling into any traps.

Managing credit wisely is an important factor in your financial success. Lenders, insurers, employers and others may obtain your credit report to determine whether you are a good candidate. Understanding the essentials is key to making sound decisions that lead to a good credit score and all the benefits it offers.

Here are answers to basic credit questions:

What is a Credit Report?

A credit report is a record of your credit activity and current credit situation, such as loan repayment history and the status of your credit accounts.

Credit reporting companies, also known as credit bureaus or consumer reporting agencies, collect and store financial data about you that is submitted to them by creditors, such as lenders, credit card companies and other financial companies.

Credit reports often contain the following:

  • Personal identifying information: Name, address, full or partial Social Security number, date of birth and employment information.
  • Your past and existing credit: Information about credit that you have, such as your credit card accounts, mortgages, car and student loans. It may also include the terms of your credit, how much you owe your creditors and your history of making payments.
  • Your public record: Information about any court judgments against you, any tax liens against your property, whether you have filed for bankruptcy or have items such as unpaid utility bills which have been turned over to collection agencies.
  • Inquiry information: A list of companies or persons who recently requested a copy of your report. An inquiry is done anytime you apply for some type of credit or service i.e., credit card or cell phone provider. (Note: A large number of inquiries can negatively affect your credit score).

It is recommended that consumers check each of their three credit reports once a year to ensure the information is accurate. Discrepancies on your reports may lead to higher interest rates on loans and credit cards, and may even result in the loss of a job offer from employers who may review credit reports when they vet candidates.

Consumers can obtain a free copy of your credit report from each credit bureau once a year by visiting or calling (877) 322-8228. You may also contact each of the credit bureaus directly:      

  • Equifax: (800) 685-1111                  
  • TransUnion: (800) 888-4213                 
  • Experian: (800) 397-3742
What is a Credit Score?

A credit score is a three-digit number that estimates how likely you are to repay borrowed money. Credit-scoring companies plug information from your credit reports into mathematical formulas that produce your credit score.

A low credit score may not keep you from being approved for credit, but you may have to pay a higher interest rate or make larger down payments on loans.

The most commonly used credit score model, FICO, has a range of 300 to 850. A higher score is better, indicating a low likelihood that an individual will become delinquent or default on a loan (see graphic for credit score range).

These factors influence your credit score:

  • Payment history: Paying your bills on time is an important aspect of taking control of your financial life and can count for 35 percent of your credit score.
  • Outstanding debt: Using a high percentage of your credit limit and maintaining high outstanding balances can weigh down your credit score. Keeping credit balances well below your credit limits and paying off balances can improve your score. The amount owed and your credit utilization can count for 30 percent of your credit score.
  • Types of accounts: Consider your mix of credit accounts, i.e., credit cards, retail accounts, installment loans and mortgage loans. Demonstrating an ability to successfully manage different types of credit over time can count for 10 percent of your credit score.
  • Length of credit history: In general, a longer credit history will increase your credit score. The longer you have had the account, the easier it is for creditors to see if you have been responsible making your payments. The length of credit can count for 15 percent of your credit score.
  • New credit: New accounts will lower the average age of your existing accounts, which can negatively impact your score. Also, opening multiple accounts in a short period of time is considered “a risk” by reporting agencies and can lower your score.

Improving your credit score may take a bit of effort and time. But learning about the factors affecting your score and taking steps to make necessary changes, you can stop bad credit from holding you back.

TCU is here to help!  Call or visit your local TCU service center or book an appointment online with one of our Universal Bankers.