Credit History & Credit Score (FICO)

 

Basics

 

We all create a credit history, everyday.  OK, generally as we get older and have to pay for things ourselves, be it a cell phone, apartment, credit cards.  If we get a cell phone, we sign a contract saying we are going to pay our bills.  If we pay our bills completely and on time, that becomes part of our credit history.  If we are late, that is reported too.  Not only does the phone company keep track of that information, but they share it with credit bureaus who keep tabs on all our credit spending, from utility bills to loans to credit cars, and just about everything else you use money for, except for cash. 

These Credit Bureaus then assign you a FICO (see below) or credit score.  Potential lenders will use this whenyou want to borrow money in the future, let's say for a car, house or anything else.  Lenders will use this history/score to decide if they should lend you money (extend credit).  Lenders use this score to calculate how much of a risk they will charge you to borrow money.  As we get older we will probably borrow money and then pay it off.  This could be a short term loan (such as a telephone bill) or a long term loan (such as a car or college loan).  Based on how much credit you owe, how promptly you pay your bills and how much you pay on your bills, credit bureaus will review your history and then issue you a credit score (FIC)). Therefore establishing a good credit history, thereby earning a good credit score, will be critical when you wnat to borrow money.