Money Management Newsletter

Credit Series:

Credit Rating

Dr. Jo Turner

Professor, Family and Consumer Economics

A good credit rating is a valuable asset in today's credit oriented society.  If you have a good credit rating it is worth protecting.  You protect your credit rating by the way you manage your money and your debts.  Use credit to increase your assets. Make payments according to the terms in the credit contract you signed.

Your credit rating begins when you first apply for credit.  The prospective lender requests information about you on the credit application.  This information is used to predict your credit behavior.  The loan officer examines the information on the credit application for three items, usually known as the three C's of credit.

• Character -- Your reputation for honesty and reliability and your record of responsibility.
• Capital -- Things of monetary value that you own.
• Capacity -- The income you now have and what can be expected in the future with which to pay for the credit you get.

Typical questions which provide the loan officer with information needed to make the decision on your loan application include:  Where are you employed?  How long have you worked there?  How much is your take-home pay from all sources?  Where do you live?  How long have you lived there?  Do you own or rent?  Do you have a checking or saving account?  Where?  What are your present debts, including all loans and charge accounts?

Prior to acting on the application, the loan officer will conduct a credit investigation.  The credit investigation may be limited to information available from the local credit bureau or the investigation could be more extensive depending upon the amount and purpose of the loan and the information available from the credit bureau.

The credit bureau serves as a clearinghouse.  They develop a credit file on people who use credit.  They collect, store, and sell information.   They do not decide your credit rating or whether you will be able to get credit.  The loan officer decided to grant or deny credit based on the results of the credit investigation.

Your credit record, good or bad, follows you wherever you go.  You can't hide from it.  Your credit record is a history of how you use credit.  It includes the information that you have given about yourself on credit applications.  It also includes information your creditors have given the credit bureau about you.  Creditors give the credit bureau such information as how often you use credit, what you use credit for, and the speed with which you pay your bills.

When you apply for credit, answer all questions honestly.  If you neglect to include some unfavorable information, it most likely will come out during the investigation and lessen your chances of obtaining credit.  If there is or has been a problem, explain the reason for the problem.

If you find that you can't pay your bills as scheduled, contact the lender before the accounts are declared delinquent.  You and the creditor can usually work out an agreement that will suit you both.  Creditors are not interested in punishing you for your misfortune.  They only want reasonable assurance that their money will be repaid.

If you are refused credit, ask the loan officer for an explanation.  If you are refused credit due to some incorrect information in your credit file, visit your local credit bureau. They will be willing to get all the facts straightened out.  If it is not straightened out to your satisfaction, you have the right to put your version of the story within limits in your credit record.

A good credit rating is something everyone should have, if for no other reason than to make it possible to get credit in an emergency.  For more information on credit contact your local county Extension office.