Establishing and Protecting Credit

What is a credit report?
Your credit report is a monthly record of your payment history with creditors. It is this report that employers, lenders, landlords, insurers, and other businesses evaluate to make decisions about your creditworthiness.

It shows:

  • how much credit you are using;
  • how well you pay your debts;
  • who is inquiring about your credit; and
  • information on bankruptcies or federal income tax liens.

As part of your overall saving and spending plan, use credit responsibly.

Credit is an important financial tool. It lets you pay for expenses you could not afford with cash, such as a college education, a vehicle, or a home. It also helps you build a credit reputation — summarized in a credit report — employers, landlords, future lenders, and other businesses consider as they make decisions about your creditworthiness.

Credit is also a privilege and a serious responsibility. Unfortunately, it is easy to misuse. Some individuals use credit as a license to spend money they cannot repay. Poor spending decisions can leave them deeply in debt and damage their credit reputations for years ahead.

The following healthy credit habits can help you establish your creditworthiness:

  • Set and follow a monthly limit for expenditures.
  • Pay bills on time and in full to avoid interest charges. If you cannot pay in full, you should generally try to pay more than the minimum.
  • Do not skip a payment.
  • Limit the number of credit card accounts you have and set a monthly limit for charges.
  • Don’t apply for credit you don’t need.
  • Know the due date, terms, and conditions of your credit cards and loans. If you have questions, ask the credit card company for an explanation.
  • Keep credit card and loan information in a safe, secure place.
  • Keep copies of sales slips and compare charges when your billing statements arrive. Call your credit card company immediately if there is a discrepancy.


In addition to your credit report, creditors might look at your credit score, a three-digit numerical summary of your credit report. The higher your score the better.

  • Payment history
  • Debt
  • Length of credit history
  • Types of credit used
  • New credit

If your score is high enough, you might qualify for the best rate on a loan or credit card account. A low score might cause you to be denied credit. Depending on the credit-scoring model, credit scores can range from 300 to 850. Most lenders consider scores above 700 good credit risks. Scores below 660 might indicate credit problems.

Your score can change as consumer reporting agencies receive new information. No single factor determines your score. But one or more of the factors might affect the final score more than others depending on the overall information in your credit report.

Your score today could be different from your score three months from now. Applying for new credit is generally what lowers your score. Ordering a copy of your own credit report or credit score does not affect your score. To understand how lenders evaluate you, review your credit scores from all three consumer-reporting agencies. You will have to pay a fee to obtain your credit score.

You can request your free annual credit report through the Annual Credit Report Request Service, a centralized contact created by the three nationwide consumer reporting agencies: Equifax, Experian, and TransUnion. Request a free annual credit report and review it annually for accuracy and any changes that might indicate fraudulent activity.

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