Understanding Credit Reports
What is a credit score and report?
Your credit report and score show how well you’ve handled credit. A credit report is a record of everything you have ever done with your credit, both in the present and past. Your credit report’s data is represented mathematically by your credit score. Your credit report and score impact your ability to obtain credit and the terms and interest rates of that credit. Your ability to find employment and find housing may also be affected.
Reports Taken into Account
– Student loans
– Car loans
– Credit cards
– Personal loans
– Mortgages, home equity loans
– Secured credit cards or Loans
Information Not Taken Into Account in a Report
– Phone/utility bills
– Debit card use
– Paying with cash
– Writing checks
– Checks cashed
– Remittances
– Income
Additional Report Information
– Name and aliases
– Social security number
– Current and past addresses
– Date of birth
– Employment history
– Collection accounts
– Inquiries
– Creditor contact information
– Consumer statement
– Public Records
– Payment history
– Accounts summary
GOOD AND BAD CREDIT HISTORY
Lender’s Point of View:
GOOD = Low-Risk
– Consistently and promptly pay your bills
– Keep reasonable amounts of unused credit on hand.
– Only use credit applications when necessary. As a result, there are fewer inquiries.
– Every year, check credit reports and fix any inaccuracies that could damage the report.
BAD= Risky
– Frequently making late payments on the credit card, utility, and phone bills
– Making full use of credit card limits
– A large number of credit applications were submitted quickly
CREDIT SCORES
A credit score is a risk indicator based on the data from your credit report. The FICO score ranges from 300 to 850, with 850 being the best possible score (lowest risk). A person with a lower FICO score will pay more for credit overall (in terms of higher interest rates and fees). We can assist you by getting debt counseling if you have a bad credit score or need it.
– 800 or higher: Lenders view you as a superior borrower.
– 740- 799: Lenders think dependable of you as a borrower.
– 670-739: Most lenders view this score as good.
– 580–669: This score is below average, but some lenders may still approve loans.
– 579 or less: Lenders consider you a very risky borrower.
Credit Scores: How Are They Determined?
Payment Record: 35%
The consumer’s ability or unwillingness to pay back the debt on time. This covers all credit account types, late or missed payments, public records, and items that have been collected.
Unpaid debt: 30%
The total amount currently owed in money. Credit cards refer to the total balance on all accounts divided by the total credit limit. High credit utilization rates can be a sign of overextending oneself and increase the risk of missed payments in the future. Maintaining credit card balances well below the credit card limits can help with this score component.
Time since Last Credit Report: 15%
The duration of the customer’s credit account ownership. This includes the date that your accounts were first opened. Your credit score benefits from a more extended history.
Acquisition of New Credit: 10%
A credit score could be damaged by opening numerous new accounts quickly.
Credit Products Used: 10%
Comparison of the different credit products a person uses, including charge cards, installment loans, retail accounts, and credit cards.
Credit Report Requests
Consumers have access to their credit reports whenever they want. The Fair and Accurate Credit Transaction Act requires each of the three major credit bureaus (Equifax, Experian, and TransUnion) to provide consumers with one free credit report annually.
Consumers are advised to verify the accuracy of the information on each three credit reports once a year. They don’t need to be asked all at once. Every four months, a consumer can make requests to various credit reporting companies to continuously track the data.
Developing Credit History
It’s essential to establish a credit history. The ability of a consumer to obtain insurance, rent an apartment, land a job, or purchase a cell phone plan can all be impacted by their credit history. All loans, including department store cards and mortgages, require a credit history.
People should obtain and responsibly manage small lines of credit to build a positive credit history. For those who need to start establishing a good credit history, the following credit options are available:
- Authorized User/Co-signer: If you’re a young adult (18 years or older), you should get a credit card with a parent or legal guardian as a co-signer.
A co-signer on an account is jointly liable for the loan. The loan is listed on their credit report, which can be positive or negative depending on how it is handled.
- A small loan from a bank to help build credit: Obtain a small loan for something for which the person already has money set aside in a different account. After that, arrange for automatic withdrawals to cover the payments. It works best when a person uses a local bank or credit union where they already have a checking or savings account.
- Obtain a secured credit card or loan: Secured cards and loans frequently demand cash or collateral security deposit to ensure the payment of the debt. The credit limit is increased in proportion to the collateral or security deposit size. The cash security deposit is returned when you close the account with the balance paid in full.
Requests for credit
An inquiry into someone’s credit report is referred to as credit. Many companies make inquiries to view a consumer’s credit report, including insurance companies, current, and potential credit providers, financial institutions, landlords, and potential employers. Credit inquiries of various kinds affect a person’s credit score.
Soft Inquiries
This is known as a soft inquiry when the credit report is only checked for informational purposes and not to make credit decisions. This includes when a consumer looks up their own report, when credit card companies pre approve customers for credit lines or during pre-employment background checks. A person’s credit score is unaffected by soft inquiries.
Hard Inquiries
When a customer authorizes a business to check their credit report as part of a credit application, this is known as a hard inquiry. For instance, if a person applies for a new credit card, auto loan, or insurance policy or opens a new cell phone account, the information will impact their credit score and remain on their credit report for two years.