Understanding Credit - Iowa College Access Network - ICAN

Understanding Credit

Maybe you've heard a commercial for loans "even if you have no credit or bad credit." Does that make you wonder what kind of credit you have or how you get good or bad credit? Do you wonder why it matters if you can get a loan anyway?

What those commercials don't tell you is that you can get a loan if you have bad credit, but it will cost you. Instead of paying a low interest rate on loans, people with no or bad credit often pay rates at the top end of the scale, which often just turns into a spiral of never-ending debt.

"Credit" is often shorthand for your credit history, or how well you can be expected to meet your financial obligations – how many debts you have, how often you make payments on time, how many years you've been paying your bills. Having a good record means you may get to pay lower rates in the future on things like:

  • Credit cards.
  • Student loans.
  • Car loans.
  • Home mortgages.
  • Other types of loans.

A credit report is the document that shows your credit history. Credit reports are:

  • Used by lenders, landlords, employers and others.
  • Available for free once per year by visiting www.annualcreditreport.com or calling (877) 322-8228 from:
    • Equifax
    • Experian
    • TransUnion
  • Also available for a fee from Innovis.

Your credit score is simply a number that represents the information in your credit report. Credit reporting agencies use a complex mathematical model to find your number. A higher credit score means you will be given better terms and pay lower interest than you would if you had a low score.

Learn more about credit in Credit Matters (PDF), a booklet from ICAN.

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