Credit Guide   What Your Customers Should Know About Credit     For generations, owning a home has been a big part of the "American dream." One critical element every borrower needs to realize this dream is developing and maintaining good credit. At , it is our mission to treat our customers — and potential customers — like members of our own family. In doing so, we want to help each customer understand why having good credit is so important — especially when pursuing the American dream of home ownership.     What is credit?     When a consumer borrows money, they are given credit. Credit simply means a borrower is using someone else’s money to pay for things. Getting credit also means a borrower is making a promise to pay the money back, usually with interest. Interest is additional money paid for the privilege of borrowing money.     Why is having good credit so important?     Establishing and maintaining a good credit history helps a consumer get a loan when one is needed. In addition, it also gives a prospective borrower more control when shopping for loans. When someone has good credit, they are more likely to receive favorable loan terms and pay less interest than someone who does not have a good credit history.     Why not pay with cash?     Paying cash for things such as clothes and household items is generally a good idea. However, using credit cards for larger purchases, such as an appliance, can help a consumer establish credit. Making monthly payments and paying off balances in a timely manner will provide a consumer with a good credit history that will help when making larger purchases, such as cars and homes.     Does it matter how many credit cards a consumer has?     Yes. Every credit card company allows a consumer a specific amount of money to spend. This is called a credit limit. Having numerous credit card accounts open, however, may affect a consumer's ability to get a loan. Although the accounts may have low or no balances, a potential lender considers all available credit limits when deciding if a consumer would be a good credit risk.     What happens if a consumer doesn't make payments on time?     Making payments late costs money. Each time a payment is made after a due date, a consumer may have to pay penalties or late fees. In addition, a history of making late payments may ultimately cost a borrower by having to pay higher interest rates on subsequent loans. For example, someone with good credit may get a mortgage with an 8 percent interest rate, while someone with poor credit past may have to pay 15 percent or more. If each borrows $100,000 over 30 years, the 8 percent borrower will pay $164,155 in interest and the 15 percent borrower will pay $355,200. That’s a difference of $191,045.     How are late payments defined?     Generally, a payment is considered delinquent if it’s received 30 days past its due date. A mortgage payment, however, is considered late when it’s received 15 days after its due date. If an account is 60 or 90 days late, it’s considered a serious delinquency. When applying for a mortgage, it is preferable not have any late rent or mortgage payments in the past 12 months since that could affect the interest rate.     How does a potential lender know if a borrower has good credit?     The primary source a potential lender uses to evaluate a borrower's credit is a credit report. When a consumer open a new credit account or borrows money, the company they do business with may report information about repayment history to one or more credit-reporting agencies. The credit-reporting agencies, in turn, make this information available to potential lenders.     Can a consumer get a copy of their credit report?     Yes. In fact, a consumer should request a copy of their credit report at least once a year to verify that all the information is correct because reporting mistakes might occur. To get a copy of their report, a consumer should call or write to one or more of the following credit-reporting agencies.     Trans Union Corporation P.O. Box 34012 Fullerton, CA 92834 1-800-916-8800 www.transunion.com Experian (formerly TRW) P.O. Box 2104 Allen, TX 75013-2104 1-800-682-7654 www.experian.com Equifax P.O. Box 740256 Atlanta, GA 30374 1-800-685-1111 www.equifax.com     The information on a credit report may vary from one credit-reporting agency to another because not all creditors report information to each agency. For this reason, a consumer may want to get a report from each agency. Depending on area of residence and circumstances, a consumer may have to pay a small fee for a copy of their credit report.     How does a potential creditor evaluate the information on the credit report?     Most creditors, including mortgage lenders, use a credit score generated from information on the credit report. A credit score is a statistical measurement used to predict how likely a borrower is to repay a loan based on experience with millions of consumers. As a result, it provides a fast and objective way to evaluate your customer's credit history.     What factors influence the credit score?     Any action taken regarding credit practices influences a credit score. For example, if a consumer regularly makes payments on time every month, that will positively influence the score. Conversely, if a consumer tends to maintain maximum balances on credit cards, and makes minimum payments, that will negatively influence the score. At any given time, a credit score is calculated by weighing all positive and negative points.     What is a "good" credit score?     Generally speaking, a consumer with a high score is considered a better credit risk. The specific range of scores depends on the credit scoring software used and the guidelines established by the lender. A typical range of credit scores, however, usually falls between 500 and 800. A credit score that falls between 650 and 800 is more favorable.     Can a credit score be changed?     Yes, in fact the only person who can change the credit score is the person whose score it is. If they have scored poorly, they can make a concerted effort to improve the score by paying off loans, reducing credit card balances and making monthly payments on time. After a period of time, generally a year or two, such positive practices will be reflected in your credit score.     Does a lender take anything else into consideration when a prospective borrower applies for a loan?     Yes, although lenders rely heavily on credit scores, other factors are taken into consideration. Included in the evaluation may be job history, income, savings and checking accounts, the types of loans currently have, and the type of mortgage loan desired.     What can a prospective borrower do if they don’t have credit?     If a prospecitve borrower doesn't have credit as reported by the credit-reporting agencies, most lenders will accept other sources of credit. Other sources or "alternative credit" includes bills that have been paid on a regular basis, such as rent, utility payments, cable TV, or monthly insurance payments. Any of these creditors should be able to provide a "credit reference" to document payment history.     Can a consumer "start over" by declaring bankruptcy and clearing away all their old debt?     Declaring bankruptcy does not automatically allow a consumer to "start over." If someone has declared bankruptcy, had a car repossessed, had a house foreclosed on, or have not paid a loan, it will likely have a major effect on their ability to get a new loan. Information about a foreclosure or repossession can stay on the credit report for seven years and a bankruptcy for up to 10 years.     Can someone help me "fix" my credit?     If a consumer is having problems paying debts, they may want to seek help from a not-for-profit credit counseling organization. Such organizations can work with a consumer and their creditors to set up repayment plans at little or no cost.     When seeking advice, however, consumers may want to stay away from "credit repair" or "credit consolidation" companies that offer to "fix" credit history for a fee. It can’t be done. Only a consumer can repair their own bad credit history by repaying debts and making monthly payments on time.     We hope this information can help you give your customers a better understanding of how to start and keep a good credit history. It’s important for customers to remember that their credit history will follow them throughout their life. Making good decisions along the way will help a great deal when they are ready to realize the American dream of home ownership.     Conclusion     Making good decisions along the way will help a great deal when they are ready to realize the American dream of home ownership.     When seeking advice, however, consumers may want to stay away from "credit repair" or "credit consolidation" companies that offer to "fix" credit history for a fee. It can’t be done. Only a consumer can repair their own bad credit history by repaying debts and making monthly payments on time.