Credit Education

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Good credit helps with more than borrowing: it can factor into everything from renting an apartment and getting a cell phone, to landing a job. Lenders, landlords, utility providers, and employers can all review credit reports when making decisions about you.

The following information can help you establish good credit habits.

Pay your bills on time

Prioritize and schedule your monthly payments, making sure to pay at least the minimum balance every month on all your accounts. Your payment history makes up approximately 35% of your credit score.

Pay more than the minimum

Pay more than what’s due. This helps to pay down debt faster.

Keep track of your credit balances

Stay on top of how much you’ve borrowed against your available credit and make sure to stay within your credit limit — and your budget. Keeping track of your spending will help you avoid maxing out your credit cards, exceeding your credit limit, or missing payments.

Practice making payments before taking on new debt

Find out from a lender how much your estimated monthly payments would be for a new loan, then transfer that amount into a separate savings account for 3 – 4 months. If you can comfortably manage your expenses while keeping these funds set aside, you can probably afford the extra payments associated with the new loan.

Credit Basics

Credit can be a valuable tool to help you meet your goals. That’s why it’s important to understand what credit is, how to manage it, and what you stand to gain from establishing and maintaining good credit.

What is credit?
Credit is your ability to obtain the goods or services you want now by promising to pay for them later. Your ability to obtain credit is based on your credit history.

How does credit work?
Lenders like Wells Fargo and other financial institutions extend credit by lending you money at an agreed-upon amount, rate and payment term. When you borrow, you begin to establish a credit history: this is a record of your credit accounts, your payment history, and the details of how you manage each account.

What are the benefits of good credit?
Good credit can give you access to more borrowing options, such as paying for a car, a home, or an education at the best possible interest rate or terms. In addition, employers, insurance companies, landlords, cell phone providers, and more can use your credit history when they make decisions about you.

See where you stand financially

To find out whether you’re ready to take on new debt, measure your credit status against the criteria that lenders use when they review your application. At gcs, we call this the 5 Cs of Credit.

Get started by reviewing 3 of the most important factors that you can influence:

Your overall credit history

Capacity (your ability to repay)

Collateral (your personal assets)

When you apply for a new credit account, lenders evaluate your application based on key factors commonly known as the 5 Cs of Credit.

Credit history

What it is

Your credit history is a record of how you’ve managed your credit over time. It includes credit accounts you’ve opened or closed, as well as your repayment history over the past 7-10 years. This information is provided by your lenders, as well as collection and government agencies, to then be scored and reported.


Capacity indicates how comfortably and consistently you’ll be able to make payments on a new credit account. Lenders use different factors to determine your ability to repay, including your monthly income and financial obligations like loan payments, rent, and other bills. This calculation is your debt-to-income (DTI) ratio, which is the percentage of your monthly income that goes toward expenses like rent, and loan or credit card payments.


Collateral is important to lenders because it offsets the risk they take when they offer you credit. Using your assets as collateral gives you more borrowing options—including credit accounts that have lower interest rates and better terms.


Lenders evaluate the capital you have when you apply for large credit accounts like a mortgage, home equity, or personal loan account. Capital represents the assets you could use to repay a loan if you lost your job or experienced a financial setback.

Capital is typically your savings, investments, or retirement accounts, but it can also include the amount of the down payment you make when you purchase a home.


Conditions refer to a variety of factors that lenders consider before extending credit. The conditions can include:

How you plan to use the proceeds from the loan or credit account.

How your loan amount, interest rate, and the term may be impacted by market conditions or the state of the economy.

Other factors that could impact your ability to repay the debt ― for example, a mortgage lender wants to know if the property you’re buying is in a flood zone or in an area prone to wildfires.

760+, Excellent

You generally qualify for the best rates, depending on debt-to-income (DTI) ratio and collateral value.

700-759, Good

You typically qualify for a credit, depending on DTI and collateral value, but may not get the best rates.

621-699, Fair

You may have more difficulty obtaining credit, and will likely pay higher rates for it.

620 & below, Poor

You may have difficulty obtaining unsecured credit.

No credit score

You may not have built up enough credit to calculate a score, or your credit has been inactive for some time.

How to calculate your debt-to-income ratio

Your debt-to-income ratio (DTI) compares how much you owe each month to how much you earn. Specifically, it’s the percentage of your gross monthly income (before taxes) that goes towards payments for rent, mortgage, credit cards, or other debt. To calculate your debt-to-income ratio:

Step 1:

Add up your monthly bills which may include:

Monthly rent or house payment

Monthly alimony or child support payments

Student, auto, and other monthly loan payments

Credit card monthly payments (use the minimum payment)

Other Debts

Note: Expenses like groceries, utilities, gas, and your taxes generally are not included. See the FAQs for more information.

Step 2:

Divide the total by your gross monthly income, which is your income before taxes.

Step 3:

The result is your DTI, which will be in the form of a percentage.  The lower the DTI; the less risky you are to lenders

Our standards for Debt-to-Income (DTI) ratio 

Once you’ve calculated your DTI ratio, you’ll want to understand how lenders review it when they’re considering your application. Take a look at the guidelines we use:

35% or less: Looking Good – Relative to your income, your debt is at a manageable level.

You most likely have money left over for saving or spending after you’ve paid your bills. Lenders generally view a lower DTI as favorable.

36% to 49%: Opportunity to improve.

You’re managing your debt adequately, but you may want to consider lowering your DTI. This could put you in a better position to handle unforeseen expenses. If you’re looking to borrow, keep in mind that lenders may ask for additional eligibility criteria.

50% or more: Take Action – You may have limited funds to save or spend.

With more than half your income going toward debt payments, you may not have much money left to save, spend, or handle unforeseen exp