Credit Education

Your Credit Report: What You Need to Know

Your credit report is a "report card on your personal finances." It's one of the most important report cards of your life because it could cost you or save you a lot of money. Why?

Because, based largely on the information in your credit report, and the resulting credit score you achieve, lenders determine whether they'll extend you credit, and how much interest you'll be charged for virtually everything you finance, from a home to a car, to credit cards, to home improvements or furnishings, to insurance, and the list goes on and on!

So what's the big deal? How much difference do a few percentage points in interest make? Brace yourself. Over your lifetime, the amount of money your credit can cost you, or save you is staggering. It can run into the tens of thousands or literally hundreds of thousands of dollars when you factor in the total amount of additional interest you might have to pay on your home or refi, automobile, revolving credit cards, and much more.

The bottom line: your credit report is serious business, well worth protecting and monitoring on an ongoing basis so you get the credit you deserve!

Information on your credit history will be contained in three separate credit reports from each of the credit bureaus: Equifax, TransUnion, and Experian. It's important to check and monitor all three of your credit reports because the information in each report may vary. Why? Because, different creditors may report your credit account and payment information to separate bureaus, and companies checking your credit may only use one of the three credit bureaus

Your Credit Report and Identity Theft Protection

It's not only important to monitor your credit reports on a regular basis to help ensure that you get the credit you deserve, it also can provide you with a "first line of defense against identity theft."

For example, you review your credit report and discover that your personal information has been changed without your authorization or you find a credit card inquiry or account in your name that is not yours. Both of these situations can be an indication that your identity has been stolen, and you may need to take immediate steps to file a report, contact the credit bureaus, and your creditors.

Your credit report provides your credit history as it has been reported by lenders to one or more of the three credit bureaus, Experian, TransUnion, and Equifax. Let's see what information is typically contained in a credit report.

Personal Profile (Name, Address, Social Security Number, Birthday, Employment Info)

Credit Summary An overview of your current and past credit status, including the total number of open and closed accounts in your name, the balances, and delinquencies.

Public Records State, Federal, and County records on Bankruptcies, foreclosures, suits, wage attachments, liens, judgments, overdue debt from creditors/collection agencies, etc.

Credit Inquiries - A record of who has obtained a copy of your credit report. Inquiries remain on your report for up to two years.

Understand Your Credit Score

When you're applying for a home loan or refinance, auto loan, or even credit cards, it pays to know your credit!  Why? Because the information in your credit report determines your three-digit credit score, and your credit score can cost you or save you tens of thousands of dollars or more!

What are the elements of a credit report and how are they "weighted" to determine your credit score?

In addition to including your personal information (name, address, date of birth, social security number, etc), your credit report includes information regarding:

• Your Payment History
  This is a record of your payments to creditors. This accounts for roughly 35% of your credit score. It includes on-time or late payment status. The number of accounts past due, and the length of time the account remained unpaid also factor into your credit score. Your payment history may also show a "public record" on your file such as a bankruptcy, lien, or judgment against you. A positive, on-time payment pattern will help boost your credit score.
• Your Amount of Outstanding Debt
  How much debt are you carrying? This accounts for roughly 30% of your credit score. Typically, debt balances that are in excess of 50% of your credit limit will have a negative effect on your credit score. If you maintain considerably lower balances (up to 30% of your available credit), this should have a positive effect on your credit score.
• Your Length of Credit History
  Lenders typically look favorably upon individuals who have a credit history that is well established. Although this only accounts for roughly 15% of your credit score, it still plays an important role in forming your credit score. This may mean that you do not want to close an old account, especially if you're getting ready to apply for a loan. By closing an old account, and reducing the amount of credit history demonstrated on your credit report, you could negatively impact your credit score.
• How Much "New Credit" Do You Have?
  Applying for too much "new credit" can harm your credit score. This "new credit" category accounts for roughly 10% of your credit score. When you apply for credit and a business checks your credit score, this can cause a "credit inquiry" on your credit report which can lower your score slightly. This is termed a "hard inquiry". Too many "hard inquiries" within a short period of time can be a sign to lenders that you are overextending yourself by taking on too much credit. It is important to note that when you check your credit score, or you receive pre-approved offers in the mail, the inquiry that results is termed a "soft" inquiry and will not lower your score.
• What types of credit do you use?
  This accounts for roughly 10% of your credit score. Do you have a balanced mix of loans (mortgage, auto, etc) and credit card (retail) accounts.
  

7 Steps To a Higher Credit Score

Your credit score could cost you, or save you a lot of money. Fortunately there are several key steps you can take to improve your credit score. Here's a quick how-to on a better credit score:

1. Pay your bills on time.
   Even if pay the minimum amount due, it is important to pay your accounts on time! Your payment status plays a big role in determining your credit score.
2. Avoid using too much of your available credit!
   Scoring models consider lower balances to be a positive factor. When you are "maxed out", using virtually all of your available credit, your score can be adversely affected.
3. Pay down your debts!
   Again, the more debt you pay off, the more available credit you will have and this will reflect positively on your credit score.
4. Try to keep your new applications for credit at a minimum.
   Too many new applications for credit over a short period of time can significantly lower your credit score. This could be especially damaging to you, if this occurs at the same time that you are looking to finance a new car, or taking on a new mortgage!
5. Be careful about closing your old accounts!
   Even if you have an old account that you've forgotten about, and not used for a long time, you should think twice before closing it. Why? Old accounts can help your credit score, because they demonstrate how long you have used credit - and scoring models factor this in to your credit score. By closing an old account, you may be negatively impacting your "length of credit history". Even if it seems like a good idea to close older, more established accounts to consolidate your balances, you could very well be lowering your score by reducing the credit history you present to lenders. Closing old accounts can also reduce the overall amount of available credit that you present to lenders.
6. Compare your credit reports from all three credit bureaus.
   Because there are three separate credit bureaus that maintain your credit information on file, and companies where you apply for credit often use separate credit reporting agencies, you should make it a habit to check your credit reports from all three credit bureaus. You can do this once each year for free from each credit bureau at www.annualcreditreport.com. For your convenience, you can also get a 3-1 Credit Report that provides a side-by-side comparison of all three of your credit reports: Equifax, TransUnion, and Experian.
7. Monitor your credit reports on a regular basis.
   Credit Reports and credit scores are changing on a regular basis - as new information is filed. Not only do you want to make sure your credit reports are accurate to make sure you get the credit you deserve, but >monitoring your credit can also help provide you with a "first line of defense" against identity theft. For example, if someone else opened up a credit card account in your name, monitoring your credit on a continual basis could help you discover this sooner, rather than later - especially if a new credit account that you didn't open appeared on your credit report. Should you discover information on your credit report that you believe to be inaccurate, you have the right to dispute the information. You can do this by writing to the appropriate credit bureau at the addresses below, or you may go to the appropriate website for each bureau and file an on-line dispute form. It is important to monitor your credit reports on a regular basis because errors in your report may lead to lower credit scores.