Know the four major areas of content in a credit report.
Your credit profile or credit report is an electronic record of your credit activities. Every time you apply for credit, whether it is approved or denied, it registers on your credit report as an inquiry. Your credit report is a record of how you use credit and how much is available. There are 4 major areas of content in a credit report.
Identifying Information. This includes your name, phone number, address, Social Security Number, and date of birth. It may also include a list of current and previous employers and previous addresses.
Credit History. Your credit history is a summary of your credit transactions. This is the core of a credit report. It includes payment history, including any late payments, to banks, credit card companies, retailers, and other lenders. Other lenders include mortgage and auto-finance companies. Any negative activity remains on a credit report for seven years.
Public Records. This area includes any filings of personal bankruptcy, court judgments, or tax liens against you. These items remain on your credit report for seven years, except for bankruptcy, which will remain for 10 years.
Inquiries. There are two types of inquiries: hard and soft. A hard inquiry is one where you are actually applying for credit and it will remain on your report for two years. A soft inquiry does not; these are entries when a lender pulls information on you to pre-qualify you for a special promotional offer.
Your report shows the current credit you have, including amounts owed, amounts available and payment amounts. If you are denied credit based on information in your credit report (the creditor must provide a reason for denial), you have 60 days from the day you receive a denial notice to receive a free copy of that report.
The law also entitles you to receive a free credit report every 12 months from each of the three credit bureaus if you are unemployed and seeking work within the next 60 days, are on welfare or your report is inaccurate as a result of credit fraud.
You can pay to obtain a credit report anytime. The three major credit reporting agencies are Equifax, Experian, and TransUnion.
There is a lot of talk about credit scores these days. A credit score, or FICO score, is a three digit number created to objectively measure one's creditworthiness. It is a snapshot of a person's credit habits. There are five basic categories used to calculate and determine these scores.
Payment History - 35%. Payment history carries the most weight. Credit cards, retail store accounts, installment loans and mortgages are taken into account when your score is calculated. Some points considered are: Do you have accounts in collection? Do you have delinquencies and if you do, how recent and how frequent are they? Do you make payments on time? The impact each item has on your score depends on the other information in the report. One 30-day late payment may not affect your score significantly if the rest of your report is good; however, if that late payment was just last month, it will make more of a difference than a 90-day late payment four years ago. The model looks at credit patterns, not isolated credit mistakes.
Amounts Owed - 30%. Amounts owed is the number of balances recently reported, the average balance across all trade lines and the relationship between the total balance owed and the total credit limit of each account. Your current level of borrowing and how close you are to your credit limits are all factors. Plus, carrying too much in credit lines on open cards, even if you don't have a balance, factors in.
Length of History - 15%. The model looks at when you first started obtaining credit. It considers the total number of inquiries and new accounts opened, as well as the number of inquires in the past year and how long it has been since your last inquiry. Inquiries are considered because statistics show that those anticipating financial difficulty will try to increase their available credit lines. Multiple inquiries in a short period used to impact your score, but in 1998, FICO updated its models to count any inquires for the same amount made within a 14 day period as one inquiry. The model was updated because consumers often shop around for the best rate. When you request your report for your own purposes, this does not impact your score in any way, good or bad.
New Credit - 10%. The FICO model looks at how many new accounts you've opened, how long it's been since you last opened an account, and how many recent inquiries you have had. Applying for too much credit is one of the easiest ways to harm your credit score.
Types of Credit - 10%. This looks at the diversity of your credit accounts. A "mix" is the best kind of credit to have. Your mix may include bank cards, retail cards, travel and entertainment cards, installment loans, and mortgages.
Negative information could also impact your score, such as collection accounts, bankruptcies, liens, judgments, wage attachments, late payments, too little credit history, too many open credit lines, or too many inquiries. Your job stability and how long you've lived at your current address may also be considered when applying for credit. Things never considered are race, religion, national origin, sex, marital status, or age.