Released July 10, 2008

CHILTON, Wis.--What is good credit? How do you get it? And how much does a good credit rating really matter?

Credit is defined as an individual's or company's capacity to borrow. Getting credit usually includes a contractual agreement in which a borrower receives money immediately and agrees to repay the lender in the future.

"Your credit history, or how you have used the credit that's been extended to you, is very important," says Teri Zuege-Halvorsen, UW-Extension family living educator in Calumet County. "If you pay your bills on time--including payments on money you have borrowed--you will be able to establish a good rating."

Having good credit is essential if you want to borrow money to purchase a home or car, rent an apartment, establish accounts with utility companies, or get credit cards.

A good credit rating might even help you obtain a job. Employers, insurers, landlords and utility companies all have the ability to access your credit history.

"Based on what they see, they have the right to withhold services, refuse to rent to you or sell you an insurance policy. A potential employer may even remove you from consideration for a job," says Zuege-Halvorsen.

If you are rejected when applying for credit, it may be because you have never had credit or because your credit is in need of repair. Lenders assess whether or not you are a good credit risk by seeing how you've handled your finances in the past. This is where your credit report and credit score become very important. Credit reports include the history of your finances from the past seven to ten years. Your credit score summarizes the information in your credit report by a numerical value.

How do people or organizations find out if you have good credit? The process begins when credit bureaus receive information from organizations such as banks, credit card or utility companies when you apply for credit. All updates on your existing accounts, address changes or other changes will also make it to the credit bureau records.

Lenders will review your credit history and score to determine if you are a good risk before they lend you money. They want to know that you are going to be able to pay the principal and interest back. In addition, they use your credit score to determine the annual percentage rate of any loans or credit cards. Those with high credit scores will be offered the lowest rates.

If you are turned down for credit

Zuege-Halvorsen suggests some things you can do to improve your credit and credit score.

--Request a copy of your credit report. Everyone is entitled to a free copy if they are denied credit or refused an apartment, insurance or job in the past 60 days. In addition, everyone is entitled to one free report per year from each of the credit reporting agencies. You can obtain your credit report by logging on to http://www.annualcreditreport.com to request your free report. This is the only website that does not charge for credit reports. You can also contact individual agencies at the following: Experian, 888-397-3742, http://www.experian.com; Equifax, 800-685-1111, http://www.equifax.com; or TransUnion, 800-916-8800, http://www.transunion.com

--Check for errors; errors on credit reports are very common. Credit reports include information about any debts that went into collection or any old debt that has not been repaid. Other information that would be considered negative to a credit report includes late payments on loans or credit cards, bankruptcy, foreclosure or court judgments. If you find incorrect information on your credit report, fill out a dispute form from the credit reporting agency or write a letter that explains the mistake. The credit reporting agency has 30 days to review the dispute and take action. It cannot put disputed claims back on the report unless the company that provided the information confirms the claim's accuracy. The agency will also give you contact information for the company that reported the claim. If the claim is accurate, it goes back on the report. If it is not accurate or the company that made the claim does not substantiate it, the claim is removed from the report and you are given a corrected copy of your new report.

--Don't max out your credit cards. Credit cards charged to the limit can negatively affect your credit. Pay off the balances before you apply for new credit.

-- Ask only for the credit you need and apply to only one source at a time. If lenders see that you have filled out too many credit applications, they may turn you down. When you fill out an application, your credit report will show if you were approved or not.

--Your credit score is one of the most important pieces of your credit history. It is calculated from a variety of different information: 1) payment history (most important factor); 2) amounts owed (second most important factor); 3) length of credit history; 4) new credit; and 5) types of credit used.

Build a good credit history

If you don't have a credit history or are in the process of repairing your credit, there are a few things you can do to build a good credit history.

--Get a secured credit card from your local bank--one that is backed by the money you have in your account. Be sure to check that your bank will report to one of the credit reporting agencies.

--Find someone to cosign a loan for you. A friend or relative with good credit is a good choice. If you do this, make sure that you make the payments and make them on time or you will not only damage your credit but also that of the cosigner. In addition, the co-signer will become responsible for the payments.

--Get a credit card from a local bank, credit union or department store. As with the secured card, check to make sure the card issuer reports to the credit reporting agencies.

Consumer Action ( http://www.consumer-action.org/) can provide you with more information. If you wish to file a complaint, go to the Federal Trade Commision website at http://www.ftc.gov

For more information on managing your finances, contact your local county Extension office.

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http://www.uwex.edu/news/2008/07/why-is-good-credit-imporant

Contact: Teri Zuege-Halvorsen, (920) 849-1450