Establishing Credit

Credit can either positively or negatively affect your personal life and/or business; much depends on how you use it. Potential creditors can review your credit history by looking at your credit report, which details your credit use and payments collected from all of your past creditors. These reports are generated by credit bureaus, which act as the gatekeepers to the world of credit.

Most creditors use information from three credit bureaus: Equifax, Experian and TransUnion Corporation. Each bureau is responsible for a particular region of the country, with TransUnion primarily collecting data for the Midwest.

While most creditors report information about you to each of the three primary bureaus, some choose to send data only to the bureau collecting in your area, or to smaller credit bureaus. Dun and Bradstreet is the primary source for credit information on businesses and nonprofits.

What do credit reports, credit bureaus and credit history mean to you? New creditors, as well as potential landlords and business partners, use these reports to help determine whether they will trust you to repay them.

A credit report tells potential creditors:

• How much money you already owe to other creditors. If you owe more money than you earn, you might not be able to keep up with payments for a new account.

• How often you borrow. Borrowing frequently might suggest to creditors that you can not meet your present debt responsibilities, or consistently seek new funding sources to cover your debts. Some creditors regard opening new credit cards as borrowing.

• How many open accounts you have. Even if accounts have a zero balance, if you have “too much” available credit, creditors might view this as a risk that you can max out these accounts and go into debt.

• If you pay your bills on time. Even occasional late payments might be a sign of cash flow problems.

• If you operate or live within your means. Credit cards and lines of credit that are maxed-out are a sure sign that you have problems meeting your debts.

Credit reports do not tell creditors the reasons why you can not pay your bills, or why you have defaulted on a loan. They just present the facts and figures in black and white.