Lesson #5: Increase Credit

1. Have you ever loaned anything (for example, money or clothes) to a friend, and whether or not expected to get the item back? Loaning out something is an example of lending credit.

2. Now imagine you are going to loan your brand-new car to a stranger. What factors would you consider before letting someone borrow it? Write a list of factors that you would consider. 

3. Lenders use specific factors to determine whether or not a person is “creditworthy” and eligible for a loan. There are five key factors that are considered when determining “creditworthiness”:
   – Payment history (whether or not you pay your bills on time)
   – The amount owed to current creditors (for example, whether you hav a car payment or an unpaid balance remaining on a credit card)
   – Length of credit history (in general, the longer you’ve had access to credit and paid your bills on time, the better your credit will be)
   –Types of credit used (for example, car and mortgage payments are often viewed as “better” debt than consumer credit card debt)
   – Number of open accounts (lenders can be cautious and skeptical of borrowers with too much credit available)

These factors are compiled on a person’s credit report, with an overall credit score that lets lenders know how risky it is to lend to that borrower. Factors such as education, race, gender, age, and religion don’t matter for credit scores.