Building Credit

A FICO score is the credit score that is used by the majority of banks and credit providers in the U.S. FICO scores are calculated based on a formula that assigns weights to various credit factors such as payment history, types of credit accounts owned, balances outstanding, credit utilization and age of accounts.

A credit report is a compilation of lender-reported credit account activity and status that is maintained by credit reporting companies such as Equifax, Experian and TransUnion. Credit reports contain account information for each credit account a consumer currently has or has had in the past.  This information includes lender name, account number, credit line or loan amount, payment status and whether the account is opened or closed.

Good credit is generally defined as being in good standing with all open credit accounts, meaning that on-time payments have been maintained and the customer has met all the provisions of the account agreement over time. Good credit is a general term that can include those with good and excellent credit or simply a specific band of the credit range that qualifies people for competitive interest rates but not the most favorable terms reserved for those with very high credit scores.

Impaired credit refers to negative credit information on a consumer’s credit report resulting from having too much credit relative to one’s income, late payments, payment default or bankruptcy which results in a low credit score. It can also refer to people who have little to no credit history. Impaired credit can be improved with a positive history of on-time payments over time.

Credit repair is the process by which a person’s negative credit information on their credit reports is improved by intervention from a fee-based third party company that works with creditors to settle outstanding debts. Improving credit scores can take time and includes paying outstanding balances and maintaining positive credit history with on-time payments of other credit obligations.