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Understand How Credit Works and How it Affects You

Credit impacts every financial aspect of your life. Your credit determines who will loan you money when you want to finance an important purchase, like a home or auto purchase. Your credit is a key factor in determining the interest rate you get when you take on debt.

If you have any current or future need for a credit card, home or other loan, or even home or auto insurance, you need to keep track of your credit and credit scores. Your credit even affects your ability to qualify for a cell-phone account.

It is important to understand how credit works to build a good credit rating and avoid credit problems. Bad credit can hurt you financially and even personally. has the information and resources you need to learn about credit. We guide you to check, protect, and improve your credit rating cheaply and effectively. We help you learn how to use credit cards to your advantage, and find all of the credit solutions you need. If your credit problems are tied to struggling with debt, we provide information to help you understand about credit counseling and other debt relief options.

Once you take care of your debt problems, we have credit restoration tips you need to build good credit and get back on your feet. You can use to search for related services, such as accessing free credit reports, credit monitoring, and understanding how credit repair works.

If you are thinking about buying a home, getting a mortgage refinance or financing a major purchase, use the resources at to understand where your credit stands and what you need to do in order to complete your purchase and accomplish your financial goals.

  • + Are there varying types of credit? If so, what are they?

    Yes. There are three general types of credit:

    Revolving credit - Where you borrow money up to your credit limit and pay it back in one lump sum or make minimum monthly payments with interest, e.g., Visa and MasterCard.

    Charge credit - Where you borrow money up to your credit limit and are not able to make partial payments. With charge credit, you are required to pay back the full amount at the end of the month.

    Installment credit - Granted to you to make a one-time purchase. You pay back your debt within a predetermined period of time at a specified interest rate, e.g., mortgage payment.

  • + Can I get a copy of my credit report at any time?

    By law you are entitled to one free credit report annually from the credit bureaus. This can be accessed at If you order a report from just one bureau at a time, you can get a free credit report three times a year. You are also entitled to a free copy of your credit report if you were denied credit; however, you can only request a copy from the specific credit bureau that supplied the credit report to the creditor that denied you.

  • + Does credit monitoring cover all three bureaus?

    The specific credit monitoring service you use will determine which credit bureau is referenced in monitoring your credit. Each credit monitoring service uses only one of the three bureaus to monitor your credit; however, since the activity you are looking for affects your credit across the board, it won't matter which bureau your credit monitoring service uses. They'll still be able to identify unexpected changes or discrepancies in your credit report.

  • + How do I get a copy of my credit report and is it free?

    Three major consumer credit reporting agencies, Equifax, Experian, and TransUnion, collect consumer information and offer credit reports. Get copies of your three credit reports for free every year at The government mandates that once annually every American can get a free report from each of the three main credit bureaus. If you stagger your requests by getting just one bureaus report at a time, you can get one free report three times a year — every four months. You are also entitled to a free report if you are denied credit from the bureau the creditor who denied you used.

    Equifax Experian TransUnion
    800-685-1111 888-397-3742 800-916-8800
    File a credit dispute online at Equifax File a credit dispute online at Experian File a credit dispute online at TransUnion

  • + How do I start establishing credit?

    The idea behind establishing credit is proving that you are a worthy borrower. This means borrowing money and maintaining a perfect payback record. Consumers desirous of establishing a good credit record should start off by applying for a credit card. The companies that monitor credit history compile information based on your payments and responsible consumers build up a good credit report by promptly paying off what they owe. However, if you do not already have established credit, some credit card companies will not approve you, this is frequently called a thin file consumer (there is not much info in their credit bureau). So another option is to apply for a secured credit. This method lessens the lender's risk by having access to some kind of guaranty from the borrower in case of default (a.k.a. collateral). One additional option to establishing credit is to have someone cosign with you. This lessens lenders' apprehension of qualifying someone with no credit. That is because if you default on the payments, they can always go to your cosigner for payment since he/she is also on the paperwork. However this is not recommended since the idea of building credit is to borrow and payback ASAP. You never want to default on your payments.  If these methods do not work, you can also apply for store cards or gas cards, which carry lower limits and are easier to be approved for.

  • + What do I do if I was denied a loan because of my credit?

    There are a few reasons why you might have been denied credit. If you do not have sufficient income, have been employed or residing at a residence for a very short-time, or simply a have poor credit history, lenders will tend to deny you. If you are denied because of credit, you are entitled to a copy of your credit report they referenced. At the very least, you will see what your credit score is and other possible reasons why you were denied.  Be sure to clean up inaccuracies and also do your homework so that you know what your own loan to value, debt to income and credit score is.

  • + What Information do credit bureaus collect about me?

    Credit bureaus collect your identification information, employment history, address, payment history, credit inquiries, and any additional public records and data.  Credit bureaus do not record or track income.

  • + What is credit monitoring?

    Credit monitoring is the automated process of keeping an eye on your credit. Credit monitoring helps protect you against identity theft and monitors any changes and/or inquiries made to your credit file by alerting you within approximately 24 hours of any major changes made to your credit file.

  • + What will debt consolidation do to my credit?

    Debt consolidation loans typically have a minimal effect on your credit. In most cases, you apply for a home refinance or debt consolidation loan and use the proceeds to pay your other debts. Although you will now have a single larger debt on your credit report, several small debts will be eliminated, lowering the credit utilization of those accounts. Other forms of debt consolidation services, including debt settlement or credit counseling will hurt your credit rating for the life of the debt resolution program, and potentially even longer.

  • + Why should I do if I am victim of identity theft?

    The FTC advises, in cases of identity theft, that you:

    1. Place a fraud alert on your credit reports, and review your credit reports. (See for a free credit report.)
    2. Close the accounts that you know, or believe, have been tampered with or opened fraudulently.
    3. File a complaint with the Federal Trade Commission.
    4. File a report with your local police or the police in the community where the identity theft took place.

  • + Account Condition

    The current payment status of your account. It identifies if your account is current, past due, in collections, etc. It does not, however, indicate payment history.

  • + Accounts in Good Standing

    Accounts that reflect a positive history on your credit report.  Accounts in good standing reflect favorably on your overall creditworthiness.

  • + Association Code

    A code that identifies an individual's relationship to an account, such as primary, authorized user, etc.

  • + Collection Agency

    A company hired by a creditor to collect a debt that it is owed.

  • + Credit History

    Your credit history is a personal record of your current and  past credit accounts and how they were managed and paid. Credit history is commonly used to predict a person's likelihood of making future payments on time.

  • + Credit Report

    A record of your credit accounts, including balances, credit limits, and payment history. Closed accounts continue to appear for up to ten years.

  • + Credit Score

    A measure of credit worthiness. Typically, it is a gauge of a consumer\'s likelihood to default on a future credit line. FICO is the industry standard measure of a credit score, which is primarily based on payment history, debt utilization, and the amount of debt owed.

  • + Credit-related Insurance

    Life, health, and/or accident insurance intended to pay the outstanding balance of debt.

  • + Creditor

    Any person or organization to whom the debtor owes money or has a legal obligation.

  • + Fair Isaac and Company

    Fair Isaac is the company responsible for creating the FICO score. This three digit score is created using information from your credit report and ranges from 300-850. Creditors use the FICO score in evaluating your credit worthiness.

  • + FICO Score

    Your FICO score is a mathematical equation/calculation that lenders use to evaluate the risk associated with lending you money. FICO stands for Fair Isaac Company, the company that created the formula originally.

  • + Line of Credit

    A HECM option that provides access to a set amount of cash whenever needed.  Interest is only paid on any cash that has been drawn against the line of credit account.

  • + Revolving Account

    A revolving account is an account issued with a maximum credit limit that does not have to be paid in full every month. The borrower usually is required to make a minimum monthly payment that is based on the  size of the balance. Most credit cards are examples of revolving accounts.

  • + Universal Default Clause

    Universal Default Clause is a term and condition of your credit card agreement giving credit card companies authority to increase your interest rate when payments are missed or late and the credit card company is informed you have defaulted on other payments to other creditors. The Credit Card Act of 2009 eliminated universal default.

  • + Verification

    Verification is the process of checking whether or not data in a credit report is accurate. Verification is initiated by consumers when they question information in their credit report. Credit reporting agencies are required to accept valid documentation from the consumer and eliminate information from the credit report that cannot be verified.

  • + Victim Statement

    A statement that can be added to your credit report that alerts creditors that your identification has been used fraudulently to obtain credit in the past. This statement requires potential creditors to contact you personally and get a verbal confirmation from you when a credit inquiry is made. A victim statement remains on your account for seven years or until you request to have it removed.

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