About two weeks ago, Kevin Wren began establishing credit.
His banker, Tom McLaughlin got him a $12,000 car loan and helped him apply for a MasterCard credit card. Before that, Mr. McLaughlin said, Mr. Wren had no credit history. The 28-year-old paid for everything in cash.
"If I didn't have the money, I wouldn't buy it," Mr. Wren said.
And that was fine for a while, Mr. Wren said. But when he wanted to buy a truck, things changed. Without a credit history he couldn't get a loan.
Before Mr. Wren went to the bank, he had applied for credit cards, but was denied. He was rejected, the creditors said, because he didn't have any credit -- creating an interesting paradox: he had to have credit to get credit.
So when Mr. Wren went to Georgia Bank & Trust to get a loan, he had to have a co-signer. That loan is now the first entry in his credit file and if he keeps up with his payments, over time, it will help him get other credit accounts, bankers say.
"Sometimes, it's hard for somebody who has never had credit to get credit," Mr. McLaughlin said. "But it's important when you think about your future needs -- a house for example. If you don't have good credit, you won't get a loan."
Every day, thousands of credit reports are updated and scrutinized. They are often critical to a person's financial future, credit experts say.
"The information in the credit report determines if a person is going to get that new car, or move into that new house or get that job." said Leon Gentry, president of the Merchants Credit Bureau.
The Merchant's Credit Bureau, an affiliate of Experian, the Allen, Texas-based credit reporting agency, keeps creditors current on who has past due bills, court judgments against them and bankruptcy filings.
Workers at the credit bureau process about 50,000 credit reports a month.
In addition to creditors, employers also use the reports to screen applicants, Mr. Gentry said. Credit reports can tell a lot about a person -- how they handle money, how they pay their debts.
The best way to keep a clean credit report is to keep your accounts up to date and pay them off, Mr. Gentry said. It is always better to pay off a debt, even if it is late.
He also recommends looking at your credit report at least once a year.
Three reporting agencies
In addition to Experian, there are two other major reporting agencies: Atlanta-based Equifax Credit Information Services, and Springfield, Penn.-based Trans Union Corp.
Each agency uses its own credit report format, but they all track similar information: name, address, creditors and court judgments. The credit agency usually starts a report when you open a line of credit and follows you for the rest of your life.
So building good credit is important.
And once you get credit, you have to keep up with your payments.
"Sometimes you're better off with no credit, rather than bad credit," Mr. McLaughlin said.
People with a poor credit payment history or a bankruptcy filing will have difficulty getting loans. Often, they have to rebuild their credit by demonstrating they can handle money responsibly.
The Consumer Credit Counseling Service, a nationwide non-profit organization, offers free counseling services. Most of the clients the consumer credit counselors see have credit problems, but the organization can also help people seeking advice.
The organization can help you determine what debts you have, budget your money and repay creditors -- for a small fee -- if your payments are overdue. But they cannot make credit problems go away overnight, local president and chief executive officer Betty Ashley said.
"When we say fix it, a lot of people think you're going to sprinkle some fairy dust and make it go away. But that's not what happens," she said. "It is not an easy, quick fix. Only timely payments can repair damaged credit."
One of the biggest problems people have is they don't know how much money they owe, Ms. Ashley said. They live on the edge and don't save for a rainy day.
"Most of us tend to live right out there to what we can afford to do," she said. "Even the slightest cut back can throw a family into a tailspin."
Lately, she has been seeing more and more clients come in deeper and deeper in dept. People need more education about money management, she said.
Georgia had the fifth highest number of personal bankruptcy cases in the country, 61,402, between March 1997 and March 1998, according to the International Credit Association.
The consumer credit counseling service recommends that a safe debt ratio to have -- not including mortgage payments -- is no more than 10 to 15 percent of income -- and savings should be equal to about six months living expenses.
As for credit cards, Ms. Ashley said that two should be enough, and she advises always paying at least the minimum payment on time, reading all the fine print on an application and closing unused accounts.
Most creditors use a credit report to determine if you are a good risk.
And many creditors use a credit scoring system.
A scoring system is a mathematical formula that statistically analyzes the information in a credit report. It is developed by selecting a random sample of its customers and statistically analyzing them. Points are awarded for each factor that a creditor considers important.
Scoring systems differ from creditor to creditor.
But most are based on several factors in a credit report, according to the Federal Trade Commission which regulates non-banking lenders. Factors evaluated in a scoring system may include: your past credit history, your income, type of credit accounts, age of the accounts, whether you own a home and how many years you've worked at your job.
A credit scoring system may not use race, sex, marital status, national origin or religion as factors.
Most scoring systems have a certain number of points that is required for credit. Credit scoring models are complex and often vary among creditors and for different types of credit.
If you are rejected, a creditor must tell you why you were rejected for credit under the Equal Credit Opportunity Act. But the law does not say that a creditor has to tell you how his scoring system works.
Fixing credit problems
Generally, there are no hard and fast rules to fixing credit problems.
Federal law spells out what can go on a credit report and how long it can stay on there. Most items stay on a credit report for seven years -- collections, tax liens, late payments. Bankruptcy is listed on a report for 10 years.
But there are a few things you can do to make your credit report more appealing:
-- Get it. Check it. Correct any erroneous information.
-- Pay bills on time.
-- Don't max out credit cards. Most credit reports do not include how much money you earn, so how much debit you carry on a card may be a barometer of your debt ratio.
-- Don't overextend you credit and keep the number of credit cards down. Some creditors see a an open line of credit as potential debt even if it is not being used and it may hurt when you try to get a big loan.
-- Don't apply for credit too many times in a short period. Too many inquiries may also signal a problem for creditors. So it may be counterproductive to apply to every offer that comes alone. Be selective.