Credit 101: Where to Start?

When I try to sit back and see banking from the perspective of someone who doesn’t spend every day “thinking” banking, there are very few things that seem more confusing than credit reports and credit scores.  Reading a credit report is something I do almost every day and there are still times when I’m left scratching my head.

Since I do quite a bit of reading on this topic and still have trouble finding definitive and helpful answers in one place, I’ve attempted to collect and organize them in a way that is truly informative and useful.  So, from A-Z, your alphabetized list of credit answers:

A credit score is what, exactly:  a credit score is a snapshot of your credit health and is an indication of how you manage your debt.

Basic histories of all of your debts and payments are contained within a credit report.

Credit Bureaus are the companies that gather, organize, and publish your personal credit data.  There are three main credit bureaus: Equifax, Transunion, and Experian.

Data is automatically transmitted by banks, finance companies, and other lenders to one or all of the three bureaus.  The three bureaus take the data and analyze it to create your credit history and credit score.

Every person does not have a credit score.  Credit scores measure how you handle your debt and payments, so if you do not have personal debt—i.e. credit card, car loan, home mortgage, student loans, etc.—you will not have a credit score.

FICO scores are credit bureau risk scores produced from models developed by Fair Isaac Corporation, the most well known scoring model.  Most lenders use a FICO based score when evaluating your requests for credit.

Good credit is a subjective and a moving target, but it usually means a credit score somewhere at or above 700.  Credit scores (based on the FICO model) range from 300-850 but 60% of consumers’ scores fit within a range from 650-799, according to

How many different factors help determine a credit score, and how important are they?  The graph below shows the five main categories and their respective importance to your score.

Payment history: 35%, Amounts owed: 30%, Length of credit history: 15%, New credit: 10%, Types of credit used: 10%

(courtesy of

Is there one quick way to improve a credit score?  Actually no, but there lots of little things you can do to improve your credit over time including paying your bills on time, keeping balances low on credit cards, resisting the urge to open new accounts just to accumulate available credit, and many more.  See here for a more comprehensive list of ideas.

Judgments, bankruptcies, collections, and tax liens all show up on credit reports and can have lasting effects on a credit score.  Even after they are paid in full or discharged, these types of occurrences may stay on a credit report for 7-10 years.

Keep a close watch on where you get your credit report and score.  There are countless companies out there advertising their “credit scores”, but they may not be using a FICO score and they may not be accurately portraying your true credit health.  Even more importantly, watch out for unscrupulous companies who are just looking to gather your personal financial information for their own purposes.  See letter ‘M’ below for a reputable resource and see the helpful table below for the name each reputable credit bureau gives to their FICO score.

Credit Reporting Agency FICO Score
Equifax BEACON® Score
Experian Experian/Fair Isaac Risk Model
TransUnion EMPIRICA®

 Lenders use credit scores and reports as part of the loan application process, but they are not the only factors taken into consideration.   The rest of your financial picture plays a major role in the evaluation of a request for credit.

Monitor your credit report and score by visiting  This site is government sponsored and is managed collectively by the three major bureaus to provide you free access to your report.  You are entitled to a free report from each bureau once every year.  Helpful tip #1: the report is free but you have to pay a nominal fee (approximately $5 apiece) to get your FICO score from each bureau.  Helpful tip #2: you can access all three reports at once or you can order each report separately at different times during the year so that you have more regular access to your credit history.

 Now you’ve made it to the midway point in my list.  Check back soon for the rest of the story.



7 responses to “Credit 101: Where to Start?

  1. Rochelle Matthews Stoltzfus

    Doug and I were just talking credit scores this evening and we had a question – maybe you can answer. We were talking about how our credit availability in our credit cards keeps going up and how we really do not want it to – we’d like a lower maximum. If we reduce the max though will we hurt our credit score? And if so, can you tell by looking at the credit score the reason (a positive reason if you ask me)?

    • Community Banker

      I like this question. It gets right into the convoluted world of credit scores…my understanding is that a lower credit limit could affect your credit score, but somewhat indirectly. 30% of your score is based on how much you owe. A major consideration of this area is % of credit utilized. In other words, your credit score is affected by what percentage of available credit you’ve used and are carrying as a balance on an ongoing basis. If you have a limit of $10,000 for all your cards combined and you owe $5,000, you have a utilization of 50%. If you request to have your available limit reduced to $7,500, for example, your utilization increases to 66% and your credit score will most likely go down. If you don’t carry a monthly balance, utilization is 0% (outstanding) and it shouldn’t matter what your limit is. And to answer the second part of your question, you will not explicitly be able to point to the score and then know exactly the reasons. But digging into your report can usually give you a pretty good feel for where your score is at the moment. Good to hear from you! Hope all is well,

  2. Rochelle Matthews Stoltzfus

    What a nice prompt response! I wasn’t going to loose sleep over it, but nice to know. Thanks.

    Also by the way, I like your ABC format, very creative.

  3. Thanks for the article! Quick clarification question: When you say “keeping balances low on credit cards,” are you referring to debt balances? I’m assuming it doesn’t matter if you approach your credit limit as long as you pay the entirety of your bill off every month…or am I wrong?

    • Community Banker

      Michelle, thanks for the comment and question. According to Elan Financials Services, a provider I work with on a regular basis, they report to the credit bureaus on the last day of every month. Whatever a card balance happens to be on the last day of the month is what shows up on the report even if the card pays off the very next day. There are many other creditors that report on the statement date. In this case, the creditor would report a monthly balance of $0 if you pay your card to $0 by the due date every month because the statement date immediately follows the card due date.

  4. First class article Brendon! Your post was clearly written and very accurate. I am an equipment lease broker and it’s amazing how many people do not know what is happening with their credit and profile. I would also add (and maybe you do so in the next post), that I find it helps that if people have issues on their credit report, explanations can come in handy. For example, if they have negative credit, being proactive to explain the reasons behind it and what they are doing to resolve those issues can go a long way to getting the types of responses they want when applying for credit.
    Great Job on the article.

    • Joe, thanks for the feedback and the comments. I would agree that any steps
      taken to proactively deal with bad credit demonstrate sincere effort, give lenders confidence in a borrower’s intent to make changes, and start the credit improvement process.

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