Credit Education

The Basics Of Your Credit Report


The credit reporting bureaus — TransUnion, Equifax and Experian — are the three major companies that maintain credit reports. The reporting companies issue credit reports to creditors, insurers and others as permitted under law for the purposes of evaluating your financial responsibility. Here is an example of how the system works:

  1. Apply for a Credit Card When you apply for a new credit card, the creditor requests a copy of your financial history, or credit report, from one or more of the credit reporting companies.
  2. The Creditor's Assessment
The creditor may use your credit report, a score, and other information you provide (such as income or debt information) to determine whether to approve your application and what rates to offer. 3. The Creditor's Decision
If you are issued a card, the creditor reports that account to the credit reporting companies, and then updates it, including your balance and payment activity, about every 30 days. 4. Your Credit Profile Updated
The credit reporting companies update your credit report as they receive new information from creditors and lenders. Your credit profile changes based on your financial activity. The next time you apply for a credit card or loan, the process repeats. Your credit report Your report is divided into six main sections. When you open a new account, miss a payment or move, these sections are updated with new information. These sections are:
  1. Identifying Information - (name, address, birth date and Social Security number)
  2. Employment
  3. Consumer Statement
  4. Account Information
  5. Public Records
  6. Inquiries




How A Credit Score Is Calculated


What goes into my credit score? Have you ever wondered how your credit score is calculated, how something as complex as an individual's credit history is represented by a simple three-digit number? It's a great question and something worth further explanation. The credit scoring system became prevalent during the 1980's as a way for lenders to quickly evaluate a potential borrower's creditworthiness. Now credit scoring is used by lenders, landlords, and utility companies to evaluate your credit behavior. Here's an easy way to think about credit scores: they're like pies. Similar to a recipe for a pie, the recipe for a credit score calls for the blending together of numerous ingredients to form a resulting product. Tastier pies have better ingredients. So do more palatable scores. So what are those ingredients, anyway? Using VantageScore® 3.0 as an example, let's look at 5 of the main ingredients that factor into your credit score: Payment History. Let's face it, if someone has a consistent history of making payments on time, they should probably be perceived as less of a risk than someone with the same exact credit profile who only has an intermittent history of on-time payments. Outstanding Debt. This is the amount owed. Reducing Outstanding Debt is always in the best interest of your credit health. Utilization. Utilization measures the amount of available credit one is using. VantageScore® Credit Score recommends keeping balances below 30% of credit limit. Credit Type & History. History again? Yep, all else equal, someone with a longer and diversified credit history is typically seen as a less risky borrower. This fact reinforces the importance of establishing a solid foundation of good credit as early as possible. Recent Inquiries. Each time someone authorizes a lender or business to make an official inquiry of his/her credit in connection with seeking credit, the score typically drop a little bit. It is important to apply for credit in moderation. What does this all mean? Good credit scores and delicious apple pies have this in common: quality ingredients. So whether you're borrowing or baking, what matters is what you put into it. When you are preparing for a major purchase make sure you check your credit scores and credit reports from all three credit reporting agencies: TransUnion, Equifax and Experian. Looking at your scores and reports a few months before your loan application will help you get a complete picture of your credit health.




The Credit Myths


Credit myths and misconceptions are plentiful. Don't let incorrect information influence your credit behavior. Some of the most common credit myths are: Your score drops if you check your own credit. This widespread credit misconception fools a lot of people, but viewing your own report and score is counted as a "soft inquiry" and doesn't change the score one way or another. "Hard inquiries" by a lender or creditor, such as those resulting from your applying for credit, may slightly lower your credit score. If you're shopping for a loan and concerned about harm to your score, know that multiple loan inquiries within a period of a few weeks are usually treated as a single inquiry to minimize impact. It helps to close old accounts. This credit myth advocates closing old and inactive accounts to hike up your score. However, this might inadvertently have the opposite affect and lower your credit score because now the credit history appears shorter. If you don't trust yourself to put a card away in a safe place and not use it, then consider canceling newer accounts. Paying off a negative record means it's taken off your credit report. Generally, negative records, such as collection accounts and late payments, will remain on your credit reports for up to seven years from the date of first delinquency. Paying off the account sooner doesn't mean it's deleted from your credit report; instead it's listed as "paid." Of course, it's smart to pay your debts, both to reduce the total amount of debt you owe and to show your willingness to repay your obligations, but expect the negative record to have some effect until it is purged from your report. Co-signing doesn't mean you're responsible for the account. Regardless of this credit myth, if you open an account jointly or co-sign a loan, you will be held legally responsible for the account. Activity on the joint account is displayed on the credit reports of both account holders. If you co-sign for a friend's auto loan and that person doesn't make the payments, your credit profile will be hurt and vice versa. The only way to end the dual liability is to have one party refinance the loan, or persuade the creditor to formally take you off the account. Paying off a debt boosts your score by 50 points. Contrary to this credit myth, credit reporting agencies companies determine your credit score via a complex algorithm that uses hundreds of factors and values to calculate it. It's almost impossible to calculate the difference in points changing one factor might make. It's wise to pay your bills on time, work to lower your debts and ask that any inaccuracies be corrected. A proven record of sound financial behavior and time will have the most significant impact on your score.




Some Credit Tips - How To Raise Your Score


Self-improvement is a wonderful thing. Becoming a better public speaker can earn you confidence and a promotion. Going to the gym regularly can help you lose those extra pounds. And improving your credit score can save you hundreds or even thousands of dollars on life's big purchases. Improving your credit is not hard to do. It just takes time and a little knowledge about the credit scoring system. While each person's individual credit profile is different and can be improved in different ways, there are five basic things that everyone can do to give their credit score a boost: Be punctual — Pay all your bills on time each month. Late payments, collections, and bankruptcies have a negative effect on your credit scores. Check your credit report regularly and take the necessary steps to remove inaccuracies — Don't let your credit health suffer due to inaccurate information. If you find an inaccuracy on your credit report, contact the creditor associated with the account, or the credit reporting agencies to have it corrected. Manage your debts — Keep your credit card account balances below 35% of your available credit limits. For instance, if you have a credit card with a $1,000 limit, you should try to keep the balance owed below $350. Give yourself time — Time is one of the most significant factors that can improve your credit score. Establish a long history of paying your bills on time and using credit responsibly. You may also want to keep the oldest account on your credit report open in order to lengthen your period of active credit use. Avoid excessive hard inquiries — A large number of hard inquiries may be interpreted as a sign that you are opening numerous credit accounts due to financial difficulties, or overextending yourself by taking on more debt than you can easily repay. Apply for new credit in moderation.





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