University of Idaho Extension

Qualifying For Credit

Credit score graphic

Your Credit History

Building a positive credit history is important because lenders will use it to decide whether to approve your loan applications.

In deciding whether to loan you money, prospective lenders will check your history of credit transactions. They'll want to know if you've paid your bills on time and managed your money responsibly or if you've piled up late-payment fees and defaulted on loans. Building a positive credit history is important because lenders will use it to decide whether to approve your loan applications. Landlords, employers, and insurance providers will use it, too, to learn how well you've handled credit in the past.

Building a Positive Credit History

If you have recently entered the work force or are new to the country, or if you're married and your credit has only been in your spouse's name, you may not have a credit history. You can start establishing your own credit by putting a utility bill in your name or applying for your own credit card. Within two years, you can build enough credit history to qualify for a car loan. It may take a little longer—three to five years—to qualify for a home mortgage.

Here's how to begin building a positive credit history:

  • Pay all of your bills—including your rent and utilities—on time or early.
  • Maintain a checking account, and don't bounce checks.
  • Start small: apply at a local bank, credit union, or retail store for a single credit card. (Lenders may deny your application if you try to open several new accounts at once.)
  • Also apply at a bank or credit union for a secured credit card that lets you borrow up to the amount you've deposited in a savings account. Pay off that card and then apply for a small loan. (Paying off a series of debts is what builds a favorable credit history.)
  • Avoid changing jobs or moving frequently: lenders consider it a sign of stability if you stay at the same job or same address for several years.
  • Review your credit report at least once a year to see if it accurately reflects your payment history.
  • If you expect to be late with your payments, make arrangements with your creditors as soon as possible. Try to negotiate with them before they turn your accounts over to collection agencies. Collection activities reflect poorly on your credit history for seven years.

Rebuilding a Damaged Credit History

Rebuilding your credit-worthiness involves the same process as building it from scratch. You must prove to lenders that you are responsible with money, that you won't borrow more than you can repay, and that you'll repay every loan on time or early.

It's harder to overcome a poor credit history than to build a good one in the first place, so consider the following steps as well:

  • Work hard to decrease debt and increase income. That makes you a better credit risk.
  • Don't spend more than you make. Lenders look favorably on those who show they can live within their means.
  • Limit how often you apply for credit so lenders don't request your credit report too many times.
  • If you are denied credit, ask why. Lenders must provide an explanation. If they say it's because you have too many credit cards, consider closing the ones you aren't using.
  • Request a free copy of your credit report at or—if you're turned down for credit—directly from a credit-reporting agency. Check it carefully and correct any errors.

Remember that bankruptcy is a last resort rather than an easy way out. It's reported to potential lenders for 7-10 years.

Your Credit Report

A credit report (see sample) is a record of your credit activity that is maintained by credit-reporting agencies, including:

Your past and current lenders keep credit-reporting agencies informed of your borrowing history and habits. The agencies share this information with future lenders who want to know whether you're a good credit risk.

At, you can obtain a free credit report every year from each of the three credit-reporting agencies.

What You'll Find in Your Credit Report

Although each agency uses a different format, all reports contain:

  • Identifying information. This includes your name, address, Social Security number, date of birth, and employment history. Be sure to check your identifying information for accuracy. If just one digit of your Social Security number is wrong, for example, some information in your report may not be about you.
  • A sample credit report
  • Public record and collection-agency account information. This includes bankruptcies, foreclosures, lawsuits, wage garnishments, liens, judgments, and collection-agency actions. A bankruptcy will remain on your report for up to 10 years, unpaid tax liens for up to 15 years, and other public records for seven years. If a collection agency has taken action on your installment loans (those with fixed payments and ending dates) and revolving credit (usually credit cards), these also become part of your public record.
  • Inquiries. When you apply for a loan or credit, you voluntarily give the lender permission to see your credit report. Each lender's "inquiry" is noted on your report. If you apply for several credit cards at once and lenders notice each others' inquiries, they may suspect you're overextending yourself. Some inquiries aren't even from lenders at all. Instead, they may be from prospective employers, landlords, or utility companies. If you ask, the agency must tell you who has inquired about your credit for the past year—or two years, if the inquiries were about work.
  • Trade lines. Your accounts are described by type and the date you opened them. In addition, your payment history is recorded and your credit limits are compared with your balances.

Your Right to Know

You have the right to know what's in your credit report and who supplied the information. You also have the responsibility to make sure the information is correct. Mistakes occur on credit reports when information is incomplete or is actually about someone else. Sometimes a clerk errs in entering a name or address from a hand-written form or applies payments to the wrong account. To minimize the chance of errors, always use the same name on financial paperwork. Don't use "Susan Jones" one time and "Sue Jones" another.

If you think there is an error in your credit report, notify the agency in writing. The agency must investigate the items in question and report back to you in writing. Expect any action to take about 30 days. The Federal Trade Commission offers useful tips on how to write a credit-report dispute letter.

The Fair Credit Reporting Act, or FCRA, offers some protection to consumers when it comes to credit reports, credit scores, and credit histories. Not only does FCRA entitle you to one free copy of your credit report each year but, for a fee, it lets you see your credit score. Under FCRA, merchants must give you a chance to dispute negative information before it becomes part of your credit history.

Your Credit Score

In our grandparents' era, Americans who wanted to borrow money paid a visit to their banker. Often, the banker already knew much about the family's financial history and money-management practices—what they owned, what they owed, and whether they paid their bills on time. From that knowledge, the banker would decide either to make or deny the loan. Today, most lenders don't know their customers personally. Instead, they use at least one credit score, determined by a mathematical formula, to decide who is a good credit risk and who is not.

Your credit scores are numbers that reflect your credit history. A high score indicates that you are a good candidate for a loan; a low score suggests that you are not. Lenders also use your scores to determine your loan's interest rate and terms.

FICO and How It Works

In 1989, the Fair Isaac Corporation developed the commonly used FICO score, which covers many kinds of accounts, including credit cards, retail accounts, installment loans, finance company accounts, and mortgage loans.

    How your FICO score is computed

FICO scores are usually between 300 and 850, with most people scoring in the 600s and 700s. If you score in the 400s and 500s, you'll be charged a higher interest rate and will need a larger down payment than someone with a higher credit score. If you're planning to make a large purchase on credit, check your credit score 6-12 months in advance so you can take steps to raise your score.

To compute your score, the FICO system does not include your salary, age, race, gender, or marital status, but it does include your credit history in five major areas:

  • Payment history. Your payment history has the largest impact on your FICO score: 35% is determined by your credit account payments. If you pay your bills on time and don't miss payments, your score will be higher. Recent payment activity counts more than payment history of years ago: a 90-day late payment made in the last 30 days affects your score more than a 120-day late payment made five years ago. In addition, your FICO score reflects how late the payment was, how much you owed, and how many payments were late. If you resume on-time payments after a string of late payments, your score will tick upward. Reports of bankruptcies, foreclosures, lawsuits, wage garnishments, liens, and judgments will also hurt your credit score.
  • Amount owed. The amount you owe determines 30% of your credit score. Even if you pay off your credit card bills every month, the balance of your last statement may be included in your credit report, which influences your credit score. Your score is reduced if you "max out" or carry large unpaid balances on several credit cards: this makes you look overextended. Carrying a small balance and paying it off shows you can manage credit responsibly. So does paying off debt rather than transferring balances from one card to another. You can increase your score by getting credit only when you need it and by staying under your credit limits. Unfortunately, closing unused credit card accounts won't raise your credit score. Neither will opening several new accounts to try to increase your available credit.
  • Length of credit history. The length of time you have built a credit history contributes 15% of your credit score. The longer you have used credit, the higher your score will be. The score takes into account the age of your oldest account, the age of your newest account, and an average age of all your accounts.
  • New credit. Think again before you apply for that credit card giving you a discount off any purchases you make that day. Fully 10% of your credit score is based on recent requests for credit. The number and type of new accounts will influence your credit score, as will the date you opened them. If you suddenly apply for several credit cards, lenders may question your ability to manage the payments and be reluctant to give you more credit.
  • Types of credit in use. The types of lenders you do business with determine the last 10% of your credit score. Your score will be higher if your borrowing is from a cross-section of reputable lenders, but don't open accounts just to achieve variety.


In addition to FICO, many different credit-scoring models are available to lenders. Only half of today's mortgage lenders base their loan decisions on FICO scores; others may apply their own or additional models. One option is the credit-scoring model called the VantageScore. VantageScores range from 501 to 990 and give consumers familiar, "report card" grades:

    How your VantageScore is computed
  • 901-990 = A
  • 801-900 = B
  • 701-800 = C
  • 601-700 = D
  • 501-600 = F

Your VantageScore is based on slightly different criteria than FICO. It uses six, rather than five, variables:

  • Payment history: 32%
  • Utilization: 23%
  • Balances: 15%
  • Depth (length and type) of credit: 13%
  • Recent credit: 10%
  • Available credit: 7%

What's Your Score?

If you have one or more accounts that are at least six months old and updated information from a lender, you'll have a credit score. Since 2001, consumers have been allowed to view them. For a fee, you can get your credit score by contacting any of the major credit-reporting agencies:

Your credit score won't be affected if you ask for your own credit report. Nor will it be damaged if firms ask about you before offering you credit you didn't apply for. But if you apply for several loans or credit cards at once, leading to numerous inquiries from lenders, your credit score can indeed suffer. An exception is shopping around for the best loan when you're buying a car or home; the inquiries these lenders make within a two-week period are counted as one.

Developed by:

Barbara Petty
University of Idaho Extension Educator-Bonneville County
2925 Rollandet
Idaho Falls, ID 83402-4654

Marilyn Bischoff
University of Idaho Extension Professor and Family Economics Specialist
322 E. Front St., Ste. 180
Boise, ID 83702
(208) 364-9910

2014 Update by:

Nancy M. Porter, Ph.D.                                                                                                    
Extension Personal and Family Finance Extension Consultant                   University of Idaho
(864) 650-8289

Other credits:

Educational Communications,
University of Idaho College of Agricultural and Life Sciences:
Editing: Marlene Fritz, Communications Specialist, Boise
Web Design: Jacob Peterson, Web Designer, Moscow

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