Credit
Your credit history tells the story of your financial habits.
Lenders use this information to determine your eligibility for loans and the interest rates you’ll qualify for.
Credit bureaus collect and dispense four basic types of information:
- Identification and employment information – your name, birth date, Social Security number, employer, and spouse’s name are a part of this record. The CRA (Credit Reporting Agency), if requested by the lender, may provide information about your previous employment, home ownership, income and previous addresses.
- Payment history – Every creditor you have had an account with can be seen in your credit file. This information will disclose how much credit was extended and whether you paid on time. Also in the file is whether your account was overdue and turned over for collection.
- Inquiries – CRAs are required to maintain a record of all creditors that have inquired into your credit history during the last 12 months. This inquiry can be for new credit or employment purposes. Inquiries for employment are maintained for past 2 years.
- Public record information – any event that is considered a public record is recorded in your file – this includes bankruptcies, foreclosures, and tax liens.
Your payment history on each account you owe is recorded each month. The company you make payments to provides the information on how much you owe, how much your payments are and whether you’ve been late to the “consumer reporting agencies” (CRAs). One commonly hears the name for a CRA as “credit bureau”. If you have ever applied for a credit card or charge account, a personal loan, insurance, or a job, then you have a credit record on file at a credit bureau.
Although you’re not allowed to place information into your credit file (you can add comments), it is up to you to verify that the information included in the file is accurate. You do this by reviewing your file annually. See below for obtaining your free credit report. Your file is only as good as the human who is posting the information… and all humans make mistakes. If you find an error, ask the Customer Service Department at the CRA reporting the incorrect information to guide you on getting the information corrected.
What is Credit Scoring?
The most widely used credit score is FICO. This scoring system was developed by Fair Isaac Company, Inc. Your score will fall between 350 (high risk) and 850 (low risk).
Impacts to your Credit Score:
(800) 685-1111
(888) 397-3742
(800) 9165-8800
These agencies may charge you for your credit report, particularly if you request the FICO scores in addition to the credit report. You are entitled to receive one free credit report every 12 months from each of the consumer credit reporting companies listed above. Chances are the free credit report will not provide you with your FICO score.
Your free credit report can be requested through each company listed above or at the following website:
Why is Credit Scoring Used?
All Applicants Are Treated Objectively
How Can You Improve Your Score?
The following types of information from your credit report are used to determine your credit score:
- Have you paid your bills on time? Payment history typically is a significant factor. Your score will likely be affected negatively if you’ve made late payments. Even one late payment can cause your score to drop 20 or 30 points — it just depends on the account that was late. But remember: A collection is worse than late payments and a bankruptcy will keep you from obtaining credit for at least 2 years.
- What is your outstanding debt? This is the amount you owe on your credit card in relation to the maximum you can borrow. If the amount you owe is too high, this will impact your score negatively. Example: If your credit card limit is $5,000, keep your used credit under $1,000
- How long has your credit file been open? What is the age of the oldest account in your file? Is it only 3 months old or is it 10 years old? Longer is better but not required.
- Have you applied for new credit recently? Too many inquiries can negatively impact your credit score, as it makes it appear that you are trying to borrow money beyond your ability to pay.
- How many and what types of credit accounts do you have? Having established credit is a good thing, but too many credit card accounts could have a negative impact on your score.
- The best type of account for the “scoring” system is a “term loan” — A bank loan where you make specific payments for a specific amount of time. Example: When you purchase a vehicle.
- Credit cards are “revolving accounts” — Having one or two revolving accounts is good, but too many can hurt the score.
- The other type of account that negatively impacts your score is a “finance company”.
The Bottom Line:
- Pay your bills on time
- Keep your total debt low
- Try not to apply for new credit excessively
- Pay particular attention to the types of credit you use.
- And time heals everything….meaning it will take time to restore your higher score once you have mastered these steps. Not a lot of time is required, but you can expect it to take at least 6 months.
I am here to help.
We would gladly work with you to determine the steps you should take to improve your credit picture.