What is Included in Your Credit Report

Your credit score is like a report card for your creditworthiness and is vital to your overall financial health. Employers, landlords, and banks alike all use credit scores to determine your ability to obtain a job, rent an apartment, or buy a car. Understanding your credit report and how the scoring system works is the best way to ensure your score remains high. In this article, we will discuss credit reports, credit scoring, and credit repair methods.

The Anatomy of a Credit Report 

The credit report is made up of several components. First, is the personal information section. This usually consists of your address, phone number, date of birth, and social security number. Some credit reports also list your employers. It may also include any maiden names, suffixes, or alternate spellings of your name. 

Payment History 

Payment history is weighed heavily when calculating your credit score and is one of the main things lenders review when determining whether to extend you credit. Payment history accounts for 35% of your credit score. Your payment history gives lenders a glimpse at how you pay your bills and how well you handle credit. Scoring algorithms typically show that your payment history is a good indicator of the likelihood that you will be able to manage credit in the future. Types of Credit that is factored into your payment history Credit cards (Visa, MasterCard, American Express, Discover, etc.) Retail store cards and accounts (Target cards, Sears, Walmart) Installment loans (auto loans, furniture loans, equipment loans) Mortgages Negative credit items like bankruptcies, judgments, garnishments, and foreclosures.

Typically, negative credit items remain on your credit report for up to seven years, so it pays to check your credit annually to make sure you do not have old debts dragging down your score.  Other components that factor into your payment history include:

  • How many of your payments are overdue today or have been overdue in the past.
  • The amount of money owed on overdue payments.
  • The number of past due to accounts on your report.
  • The amount of time that has passed since your last overdue payment.
  • The number of accounts that have been paid on time.

Amounts Owed 

How much you owe matters and weighs heavily on your credit score. This component makes up 30% of your score. The amount you owe is heavily weighted because it shows the lender how much of a debt burden you are carrying in relation to your income. The higher your debt to income ratio, the lower the likelihood that you will be able to obtain credit. Getting your balances down is the best way to keep your credit score high. The components of amounts owed The total amount owed on all of your accounts (this is the sum total of everything you owe) The amount owed based on the type of account (how much do you owe on installment loans versus credit cards or mortgages) How many accounts carry balances (do all of your open accounts carry a balance or only a few?) Credit utilization (how much of the overall credit available to you are you using?) Lenders will look at high credit utilization as a sign that you are having money problems and are maxing out your credit cards How much of your installment loans are paid off (you have a $20,000 car loan and you have only paid off $2,000 vs. $10,000)

Length of Credit History 

The length of your credit history comprises 15% of your score and is vital for letting lenders know if you are a new borrower or one who has a long, established history of credit. Longer credit histories tend to raise your score. Even if you have had a shaky history of using credit, the age of your credit will still count positively in your favor. The components of the length of credit history How long has it been since you opened your first line of credit? How was the credit used in the years since you opened your first account? How long has it been since you used the account? Is the account old and unused or are you still actively using it? Experts recommend that if you have a card that you want to pay off, simply pay the balance down to zero and leave the card open. This way you can enjoy a low balance while still allowing your accounts to age and raise your score. The older an account, the better it weighs on your score. To establish new credit, many borrowers start with a secured card that requires you to pay a deposit that as used as a security in case you default on the loan. This will allow you to build a credit history if you have not previously had credit.

 Credit Mix 

The types of credit that you carry matters when it comes to calculating your score. Lenders look at whether you’re able to handle both installment loans, like auto loans and revolving loans, like credit cards, responsibly. The credit mix makes up 10% of your overall score. Some people will instinctively start applying for new credit in order to boost their score, but in reality, this only serves to hurt your credit. Lenders look at the age of your loans, and applying for several new loans at the same time will ultimately drop your score. In addition, each time a lender pulls your credit report, (also called a hard inquiry) it lowers your score, so applying for multiple lines of new credit is not advised.

 New Credit 

The number of new accounts that you have have a small impact on your score. New credit accounts for 10% of your score. Soft inquiries, which are those that use your credit report to verify data instead of actually pulling the entire report, have a low impact on your credit score. In most cases, the scoring algorithm will allow you to “shop around” for a good rate on a loan for up to two weeks without counting them against you. This usually happens when you are applying for a mortgage, car loan or a line of credit. Typically, checking your own credit will not lower your credit score. If you use one of the approved organizations for pulling your credit report, you will see no difference in your score. In general, checking your own credit counts as a soft inquiry, so even if it lowers your score it will only make a slight difference. 

Credit Scores 

Typically credit scores range from 300-850 300-579 =Very Poor Borrowers in this range are frequently turned down for credit. Those who are approved often pay high interest rates 580-669= Fair Borrowers in this range are considered below average applicants. While many will get approved for loans, the rates will be higher than average 670-739= Good Lenders typically take a chance on borrowers in this score range because they are thought to have a low chance of defaulting on the loan 740-799= Very Good Borrowers with scores in this range typically get approved more often than not for loans and are offered low interest rates 800-850=Exceptional Borrowers with scores in this range are eligible for the lowest interest rates possible.

Moving from one credit scoring tier to another usually requires diligent effort. By paying your bills on time, having the right mix of revolving and installment loans, and maintaining your accounts, you can enjoy the best interest rates and high approvals for loans. On the flip side, falling behind in payments can easily drop you from one of the higher tiers to the lower tiers. Requesting Your Credit Report One of the best ways to find out where you stand financially and repair your credit is by requesting a copy of your credit report. The Federal Trade Commission (FTC) allows each person to get a free copy of their credit report each year. You can get this free report by going to annualcreditreport.com and requesting a copy. You can also find out how to get a free credit report by calling 1-877-322-8228. It is worth noting, however, that the free annual credit report does not include the credit score.

Repairing Your Credit Score One of the most important reasons to check your credit report each year is to catch any errors that may be listed on your report. Once you have disputed any errors in your report, you can use the data contained within it to establish a plan to repair any negative items and increase your score. When it comes to understanding your credit report and how it is scored, getting a free copy of your credit report is the first step. Analyze your credit report each year to make sure all of the information is accurate and that your lender has a shining report card of your finances. Get a copy of your free credit report today.

FAQ

Why is it important to get a credit report?

The importance of getting one is quite simple, this is what we need in order for financial companies to evaluate our credit card, and consider what financial services options they can provide us with. Before considering having one, it is necessary a credit monitoring to assess our financial situation by improving our credit history, avoiding the late payment, and not having inaccurate information in order to improve credit reporting. Equally mattering, intelligence plays more than luck in the financial world, one must know how to move our money to have the right conditions, so that they appear on the credit report card. Nevertheless, we must also know how to protect it, it is vital as well to consider the fraud alert and the security freeze that would be the credit freeze to avoid an identity theft. As we know, the higher the better, but do not get frustrated if we have a low score, there are always ways to move forward and improve the credit history by paying everything on time, in this way banks and other financial institutions can give us a better quality loan.

Does checking your credit report hurt your credit score?

Checking our credit report at a reporting agency makes sure everything is in order and lets us analyze our report to make corrections. Many people are afraid of checking their credit report and that it will affect their credit score, but the reality is that it does not affect their credit score. You can check your report safely and without any worries. A credit reporting agency is responsible for this type of task, just as a credit reporting company or another information provider such as a fico score, Experian credit report, or any nationwide credit reporting company will be responsible for compiling and selling credit information. In addition, there are free credit reports to try, as well as an additional free credit report if someone is looking for a job. It is very important to be aware of the personal information that is placed on the report as the possibility of identity theft will never be absent. You can pay for a credit monitoring service to avoid these problems.

How do you fix mistakes in your credit report?

A majority of people make mistakes by misplacing information such as a person’s name, social security number, or address. But just because people make mistakes doesn’t mean that you have to make them too. You might make a mistake, but the best option is to avoid it by reviewing the information and requirements before you submit it so that you don’t affect your credit account. However, to fix errors on your credit report you need to contact the credit reporting company and the company you provided the information to, then you will have to explain to the creditor that errors need to be corrected and they will thoroughly review your credit report. You can go to the credit bureau or talk to them online. Even if you have made a clumsy mistake when placing the information, you can still affect many important things. 

How can you wipe your credit clean?

It is already a mistake to have let your credit report get messy, even if it happens and even if it is sometimes unavoidable, it is still a mistake. But even worse is not taking the time to clean up your credit history, it’s something you have to do to improve your score. Creditors usually do a credit rating to see in what condition you are to choose which type of loan to give you and for this very reason it is important that you clean up your history. First of all, you have to review your credit reports and for this, you have to request them. Then, you must visualize every error in your history and clean it up by reducing your credit usage, paying off debts early, and paying off late payments. It is essential to have this cleaned up in order to receive less interest, to be able to extend the credit limit or interest rate. Sure, it is not easy because there are complex situations to face, but there is always a way like looking for a credit union.

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