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What is a credit report?
In much the same way that a resume displays your
work experience to a prospective employer, a credit report provides prospective
creditors (and in some cases employers and insurers too) with a detailed picture
of your credit history. The three major credit
reporting agencies are Equifax,
Experian, and TransUnion.
These agencies, which are also called "bureaus," collect and report information
about consumers' financial habits and put the information into a credit report.
Each agency's reports contain the same basic
information: name, Social Security number, current and previous addresses, details
about loans and how they've been handled, public
record information such as bankruptcies, court judgments, or liens, and a list
of companies that have reviewed your credit. In
most cases, your credit report influences whether or not you will receive what
you are applying for. [Back
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What
is a credit score? A credit score number
is often called a FICO score, for Fair, Isaac and Co., the California company
that developed the system upon which it is based. The score is supposed to distill
all the information in your credit report, using a formula to calculate a single
number that indicates your credit worthiness. It's
designed to give lenders a fast, accurate prediction of the risk involved in giving
you a credit card or loan. Lenders have attested to the score's value in streamlining
the underwriting process and creating more opportunities for consumers to get
mortgages as well. Scores range from the 300s
to about 900, with the vast majority of folks falling in the 600s and 700s. The
higher the score, the better.
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What
factors determine my credit score? When
determining how high a score will be, five characteristics are considered above
all. In order of score significance: - Past
delinquency: People who have failed to make payments in the past tend to do
the same in the future.
- The
way credit has been used: Someone who is maxed out or close to the limit on
a credit card is considered a greater risk than someone who doesn't look at the
high credit line as a license to print money.
- The
age of the credit file: Fair, Isaac's model assumes people who have had credit
for a long time are less risky.
- The
number of times a person asks for credit: The system frowns upon those who
have initiated several requests for credit cards, loans or other debt instruments
over a short period.
- A customer's
mix of credit: Someone with only a secured credit card is generally riskier
than someone who has a combination of installment and revolving loans. (On installment
loans, a person borrows money once and makes fixed payments until the balance
is gone, while revolving borrowers make regular payments, each of which frees
up more money to access.)
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5 reasons to check your credit:
Ideally, your credit report is an accurate,
up-to-date reflection of your credit history. However, since we don't live in
an ideal world, there are many reasons that your credit report could contain inaccuracies
that might prevent you from receiving the credit you deserve. The good news is
you can take action to keep your report accurate. Here
are FIVE REASONS why you should make a practice of regularly reviewing
your credit report: - Inaccuracies
& Mixed Credit Files: Many inaccuracies on a credit report can be the result
of simple human error, and are therefore are not difficult to dispute. Whether
the inaccuracies relate to payments not credited, late payments, or data mixed
in from the credit file of someone else with a name similar to yours, you will
want to contact the credit bureau to dispute inaccurate information promptly.
- Tracking & Payments:
One of the most important elements of credit is a demonstrated history of on time
payments. Once you send the check though, anything can happen--a delay in the
payment being received can kick you over to a 30-day delinquency. This has a negaive
affect on your credit, and creditors don't take it lightly. If you call your creditor
and explain the situation, they might adjust the info, but you need your credit
report to know whether you have a delinquency or not.
-
Identity Theft: This issue alone is reason to order
your credit report immediately. Identity theft is an insidious crime, involving
a thief who assumes your name to open new accounts, divert your card statements
to another address, and run up all sorts of bad debt without you ever knowing
about it until collectors come calling. The best way to catch a thief who is using
your name is by getting a copy of your credit report, which will show you if there
are accounts listed you know you haven't opened. For example, if a thief has intercepted
a pre-approved credit card offer in your name and sent it in with a change of
address, your credit report will include the account.
-
Inquiries: If you're shopping around for a loan or
more credit, you should know when creditors check your credit, it places an inquiry
on your credit report. Inquiries can add up, which is often interpreted as negative
by creditors. For this reason, too many inquiries can actually make getting credit
more difficult. Moreover, if you didn't authorize someone to look at your credit
report and they did, they may have broken the law. Who's been looking at your
credit?
- Credit Fraud--Unauthorized
Charges: Credit fraud involves the theft of your credit card or account number
to make unauthorized charges to your account. Though consumers are protected financially
from this abuse, other creditors may take note of all this activity and decide
to raise your interest rates or refuse to grant you a loan. Ordering your credit
report will help you catch new activity on accounts that you haven't been using,
or may have closed. When it comes to managing your credit worthiness, your credit
report is your best resource. Your credit report gives you the opportunity to
manage your credit wisely today, while planning your credit strategy for future
goals.
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