What is Credit and Why Does it Matter?

When you take out a loan, rent an apartment, or sign up for a credit card, you are a borrower engaging in a relationship with a lender. You are receiving goods or services upfront with a promise to pay later, often with interest. That agreement is credit. Make good on your promise and you build good credit. Default on that promise and you develop poor credit.

The impacts of credit
Your credit history is tracked in a report with a corresponding score. The better your credit, the higher your score, and the more likely lenders will lend you what you want at favorable terms. Your credit score can impact many areas of your life—not just loans. For instance, landlords, insurers and employers often use credit information to judge how responsible you are. When you have good credit, you can:
  • Get your utility services more easily
  • Get a cell phone without pre-paying
  • Get approved for higher credit limits
  • Qualify for lower credit card interest
  • Have more housing options
  • Get better rates on car insurance
  • Look better to potential employers
  • And so much more!

Check your credit reports
It’s a good idea to check your credit reports regularly to make sure that there aren’t mistakes or missing information in the report. Also, your credit score fluctuates based on your ability to pay off loans in a timely manner—and to make good on your promises. You can get free credit reports from each of the three major credit bureaus. Visit AnnualCreditReport.com to learn how.

Just starting out?
If you’re new to credit, what are the best ways to build a good credit score quickly? You begin to build your credit score after you open your first line of credit, such as a credit card or a student loan, reports Bankrate. At that point, your credit score is determined by the way you use that initial credit account. For instance, are you making your payments on time?

As lenders report your credit activity to the three major credit bureaus (Equifax, Experian and TransUnion), you’ll begin to build a credit file that will be used to determine your starting credit score.

Understanding your FICO credit score
A FICO score is a three-digit number based on the information in your credit reports. That number is the key to your financial life, as it defines your credit worthiness. It’s used as a tool to help lenders determine how likely you are to repay a loan, which affects how much you can borrow, your loan terms, and the interest rate. FICO scores range from 300 to 850. Aim for your FICO score to be above 670 as quickly as possible. Once you have good credit, you’ll be able to apply for competitive rate credit cards, and it’ll be easier to take out a mortgage, rent an apartment, buy a car, and get a cell phone plan. 

Curious to know what your credit score is? Centreville Bank can help. We offer SavvyMoney®, an online tool to help you understand your credit score, get notified of changes, and get tips for improvement. To use it, simply enroll in our free online banking service or download our mobile banking app. 

Get Credit Savvy