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Credit Issue?

Explain "Credit" to me. How is it built, and loss?

you bilt it by making payments on time and you lose it buy missing passments or not making paymenst

Your credit report is a record of all of the times you've borrowed money and repaid it. If you are good about paying back debt your credit report will improve. If you miss payments (on a credit card bill for example) your report will get worse. Having a bad credit report will make it harder to rent or get a mortgage.

Credit is established by the opening of a financial account ie) chequing account, credit card, loan, mortgage.

Let's say you're young and need a bank account, the bank would run a credit check and would come up empty because up until that point you don't exist at the credit bureau. However by opening the account that information is sufficient to create a profile at the credit bureau and will list your bank as an inquirer.

Now that you have a credit file, information such as DOB, address, employer, SSN will be on it.

Going forward, if you apply for a credit card, they'll compare the information on your application with your credit bureau. They'll see that you have an account and will either extend or deny credit on your ability to pay. You will also start establishing a credit score which is comprised like this:

35% - Your Payment History
30% - Amounts You Owe
15% - Length of Your Credit History
10% - Types of Credit Used
10% - New Credit

Once you start using credit the score will fluctuate up and down based upon the the existing balance vs your income/payments AKA debt to income ratio.

You want the ratio to be as low as possible and refrain from using more than 25% of credit limit.

After about 6 months you'll establish a payment pattern. The creditor will report your payment history to the credit bureau. It will show that you pay on time or not or have paid late (you don't want this)

If you fail to make payments on time and/or for the required amount this is called defaulting. Basically you're not adhering to the contract of your credit account. Everytime you're late on a payment it is reported and your score also falls. If you make this a habit you will lose points and the good graces of your current and potential future creditors as you'll prove that you cannot make good on your debts.

Future creditors will look at your behavioural patterns of previous accounts to determine whether or not they want to give you credit and at what interest rates (higher credit score, lower interest rate and vice versa)