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Understanding Your Credit

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Your credit history is a record of your borrowing and your ability to pay it back. It records what you borrowed, when you borrowed it, when you paid it back, and if you were late. Other information in your credit report includes, unpaid debts sent to collection agencies, past bankruptcies, monetary court judgments, and tax liens.

The information in your credit report is used by lenders to help them make a decision about whether or not to lend you money. Your repayment history determines how much they will charge you to borrow money. The worse your credit history the more they will charge you more to borrow their money. This means you will paying higher interest rates. A higher interest rate means your monthly payment to borrow the same amount of money will be higher.

When you open a new credit account the lender will report the existence of your account to one or more of the three major credit bureaus. The three credit bureaus are Experience, Equifax, and TransUnion. The lender will also report your current account balance and payment status to the credit bureau(s) each month.

Your credit history is recorded and stored in your credit report for 7 years (10 years for a bankruptcy). The information in your credit report is stored in a computer and put through a proprietary mathematical algorithm to generate a credit score. Your credit score or FICO score allows lenders to asses your risk and credit worthiness.

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