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Entering the World of Credit

Your good name can be worth a lot.

Milestone #1: You're ready for your first credit card. You've completed and mailed the application, and you're waiting for approval. How does someone who has never met you decide whether or not to approve your application?

Milestone: #2: You're buying your first car and apply online for a credit union loan. What resources does the loan officer use to approve or deny your request for credit?

The first thing lenders look at is your credit report. Here's how it works and how you can make sure you have one that enables you to borrow.

What's a credit report?

Just like grades, it's YOUR credit report. It's a record of your credit history that lists your loans and other forms of credit, your creditors, and your payment history. Like your reputation, your credit report tells a lot about you. If it shows a bad credit rating, you'll find it harder and more costly to get credit. And if your credit rating is good, it'll work to your advantage when you want to borrow.

Like any reputation, a good credit rating takes a long time to build but a short time to destroy. Your actions are important because credit information stays in your report for up to seven years. And if you ever declare bankruptcy, that remains on your record for ten years.

What's in a credit report?

Nationally, three credit bureaus-- Equifax, Experian, and Trans Union Corporation--gather credit information and formulate reports.

A credit report is
like a report card
on how responsibly
you repay money
you've borrowed.

Your report includes your name, address, social security number, date of birth, and present or most recent employer. Each bureau calculates an overall score for you that basically tells lenders how well you've managed your debt payments.

Next come the details. The report lists all your credit cards and loans, which lender or card company granted them, the amounts you owe, and your payment amounts. A coded scale ranging from pays on time to payment over 120 days late shows how you handle your debt responsibilities.

A bad credit report could mean NO borrowing. You won't know that your late payments have hit your credit report-until it's too late. They might include late payments for rent, auto insurance, telephone or utility bills, student loans, or credit card overcharges. Your creditors will notify you that you're late, but they may report it to the credit bureaus, too. That can hurt. Read this sidebar to find out how.

Last, the bureaus list all the companies that have asked for your report. If there's a long list, it may be an indication that you're having trouble getting a loan, which turns off most lenders. And if no one has removed cancelled credit cards from the list, you could appear to be further extended than you really are.

How do I shape my credit report?

As a first-time borrower, you won't have much of a credit history. However, there are ways to start proving your creditworthiness: