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If you ever applied for any type of loan or credit card you have probably had your credit report reviewed by the lender. If your report shows that you pay your bills on time and don’t have too much debt, you will probably be considered for the loan. If the report shows that you don’t pay your bills on time or you have defaulted on a loan in the past, you may not get the loan at all or you may be charged a high interest rate. Because credit reports can have such an impact on your life you need to know how they work and how to make them work for you.
What is a Credit Report?
A credit report is an accumulation of how you pay your bills and payments, how much credit you have available, what your debts are, and several other areas of information that help a lender determine if you are a good or bad credit risk.
Credit Bureaus collect information from merchants, lenders, landlords, and many other sources. These credit bureaus put all of this info together and sell your report to lenders so they can judge your credit worthiness.
Information in your credit report
Personal Identifying Information – This includes you name, aliases, current and previous addresses, social security number, birth date, current and previous employers, and your telephone number.
Credit History – This section includes your entire bill paying history with your past and current creditors. It shows if you paid the bills on time or if they were late, when the account was opened and closed, what the credit limits were, what your high balances were, and what type of account it was.
Public Records – This includes readily available public information that might help indicate your credit worthiness including bankruptcies, court judgments, and tax liens.
Report Inquiries – This section shows every creditor who has received a copy of your credit report.
Dispute Statements – Some credit bureaus allow you to include a dispute statement about something you may not agree with in the report.
Items that do not appear in most credit reports are bank account balances, race, religion, health, criminal records, income, and driving records.
How Credit Scores are Different
Credit scores are currently calculated on a scale from 300-850. This is to change when VantageScore takes affect in the near future. The current Fico score uses proprietary formulas that can differ from each credit bureau. Anything above a 720 is considered to be very good credit. Usually those with a score of 600+ can get a mortgage loan.
How the Information Gets There
Every month when you pay your bills, your credit card companies, banks, utility companies, department stores, and others send info to the big three credit reporting agencies. These three agencies are TransUnion, Experian, and Equifax. They report how much your payment was, when it was sent in, and what your balance is among other things.
Equifax – http://www.equifax.com/
To order your report, call: 800-685-1111 or write:
P.O. Box 740241, Atlanta, GA 30374-0241
To report fraud, call: 800-525-6285
Experian – http://www.experian.com/
To order your report, call: 888-397-3742 or write:
P.O. Box 2104, Allen, TX 75013
To report fraud, call: 888-397-3742
TransUnion – http://www.transunion.com/
To order your report, call: 800-916-8800 or write:
P.O. Box 1000, Chester, PA 19022
To report fraud, call: 800-680-7289
How Lenders Interpret Your Report
Inquiries happen when you apply for credit with some type of creditor and they pull your report. Every time you let someone pull your credit it potentially damages your credit score by adding another inquiry. Too many inquiries worry lenders because they fear you may be in need of money or are in some sort of financial distress. Anything over 6 inquiries on six months can flag you as a potential risk. If you ask for a copy of your report yourself, it does not count against you like it does if a creditor pulls it for the reason of gaining credit.
Open Credit Accounts
Accounts are never closed until you close them yourself, cutting up a credit card and throwing it in the trash is not enough. You must call or write the creditor to have the account closed. If you have too many or too few credit accounts it can affect your score. Credit card accounts that have account balance ratios of over 50% can also damage your score. Keep the credit cards you have had the longest as they also have the longest credit history associated with them.
Long story short, never miss a payment. If you do miss a payment, it will stay on your credit report for 7 years. Make the minimum payment at all cost to keep your credit in good standing.
Maxed Out Credit Lines
This is another area that scares lenders, try to keep balances on credit lines under 50%. If you have a maxed out card but have other cards with low balances, transfer some of the balance from the first card to the others to bring down each cards individual balance.
Equifax, Trans Union, and Experian have announced a new credit scoring system. This new system, called Vantage Score, will revolutionize how the big three credit scoring bureaus do business. This new system has been developed to make it easier for financial institutions to evaluate their customer’s creditworthiness. VantageScore levels the playing field by making a standard by which credit bureaus measure credit worthiness.
Today, customers find that scores from each of the credit bureaus can vary widely. This new system standardizes how scores are derived, taking the guesswork out of the reasons why one score might be higher than another.
The bureaus might have slightly different scores for a given customer in the future, but this will be based only on what actual credit information that bureau is reporting, not on how their internal system values different criteria of that information.
The new system is set to take effect later this year, and the values of the scores have changed somewhat:
New Credit Scoring Scale
Score Grade Credit Outlook
901-990 A Excellent Rating
801-900 B Good Rating but short of Excellent
701-800 C Fair; Moderate Risk
601-700 D Higher Risk
501-600 F Highest Risk
Just remember that good credit is one of the most important things to have when purchasing a home. Do your best to keep your credit as good as possible.
If you have any questions on the new credit scoring scale, credit reports, credit scores or anything else you see on this site, please fill in the contact form below.