Knowing Your Credit Report in 6 Easy Steps
Your credit report is more than just a number; it’s a reflection of your financial health and can significantly impact your financial future. Did you know that discrepancies in your credit report could be costing you in overcharged interest? Dive into our step-by-step guide to understand the importance of your credit report, how it’s compiled, and the actionable steps you can take to ensure it accurately represents your creditworthiness. From understanding the role of credit bureaus to learning how to boost your score, we’ve got you covered
Why Your Credit Report Matters
Did you also know that each credit agency can hold very different information about you?
Shocking isn’t it?
Remember, wherever you are in the world, if the information they hold about you is wrong or just simply out of date, that might be bringing your credit score down!
That could also mean that you’re missing out on some sweet low interest deals for your existing debt, or you are simply just paying far too much for the debt that you already have.
Getting these issues rectified could mean reduce the cost of your current credit right now!
It’s free to check your score and depending on how much you owe and the current state of your credit report, it could save you a lot of money every year.
Whilst it does work slightly differently across the globe, in the US, each credit bureau gathers and analyzes your credit information, then sells that information to potential creditors for a fee.
The three main credit bureaus in the U.S. are Experian, Equifax, and Transunion. Every consumer can access their own credit information by requesting a credit report from one (or all!) of the credit bureaus.
In fact, US federal law (Fair Credit Reporting Act) allows you to obtain one free credit report from each of the three credit bureaus every 12 months.
That’s three free credit reports a year!
This law was established to encourage consumers to regularly check their credit report for fraud or inaccuracies.
You may never know that someone has opened a credit card in your name without viewing that very important report!
You can only obtain this free credit report from www.annualcreditreport.com.
It’s important to note that this free report does not have to include your credit score.
The credit bureaus can charge to obtain your score, but this fee must be reasonable and you can usually get your score for less than $20.
So whats on a credit report?
Personal information: including your name (including any and all names used like maiden name), birthdate, social security number, and current and former addresses you have resided at.
Credit accounts: including all of your current and past credit cards, mortgage loans, car loans. This section also lists your account balances and payment history, as well as your credit limit.
This information is critical to compiling your credit score!
For example, if you are habitually late in paying your credit card bills, and you are close to reaching your credit limit with a high balance, these factors could lower your credit score.
Public records: including any liens, foreclosures, bankruptcy filings, and civil suits or judgments.
Inquiries: which includes any companies or lenders who have reviewed your credit report. A large number of inquiries in a short period of time could hinder your credit score.
Credit score: is a number associated with your creditworthiness .
It gives potential lenders an idea of how likely you are to pay back credit based on your credit history, and it can range anywhere between 300 to 850.
For the most part, the higher your score is, the more “creditworthy” you are considered to be.
Now scores can differ slightly amongst the credit bureaus based on which credit scoring model they used. The two main scoring models are FICO and VantageScore .
While both models utilize your credit report items like payment history and collections to compute your score, they do use different formulas to actually formulate those scores.
So don’t be alarmed if you have three different credit scores!
Also, your score may differ because you may have some credit information that was only reported to one particular credit bureau.
For example, you may have opened a car loan at your bank and it was only reported to Transunion. Your Transunion score may look different from your Experian or Equifax scores because of this additional credit.
Interestingly enough, lenders don’t have to report your credit information to all three bureaus, but most do anyway.
What if you want to raise your credit score? Is there anything you can do?
6 Ways To Improve Your Credit Score
According to Experian, here are 6 ways to improve your score :
1. Pay your bills on time. This seems self-explanatory, right? But payment history is pretty important to potential lenders and is a good indicator of how you will pay back credit in the future.
What if you are already behind on some payments? Try your best to get them caught up. It may be worth a phone call to your creditor to see how you can bring those payments current. They may offer a payment plan that will make it easier for you to manage.
Also, utilize technology to make your life easier! Set up automatic payments for your credit cards, utility bills, and any loan payments. Once that’s in place, you won’t even have to think about it, and you won’t have any late payments
2. Pay off debt and keep balances low in your revolving credit. High balances that are close to credit limits can hinder your credit score. Your credit utilization ratio is used to calculate your credit score, and it’s computed by adding up all of your credit balances and dividing by your total credit limit. Typically, lenders prefer to see ratios of 30% or less.
The best way to keep this ratio low is to pay down account balances and keep those balances low. While you work on reducing your debt, you could become an authorized user on another person’s account (as long as they are responsible with their credit!)
3. Apply for new credit only as needed. Although new credit inquiries only account for a small percentage of your credit score , it’s still a good idea to keep unnecessary credit applications to a minimum.
That’s because each time a lender pulls your credit report, it results in an inquiry on your report. Too many inquiries can be a “red flag” to other potential lenders in the short term!
In addition to the impact of inquiries, applying for and receiving additional credit may create more of a temptation to overspend
4. Don’t close unused credit cards. Any and all available credit you have can help your credit utilization ratio, so don’t close those unused credit cards unless you have a reason to!
Not only that, but those credit cards with which you have a long payment history can still boost your credit score even if you aren’t still using them.
5. Dispute any inaccuracies in your credit reports. Any errors on your report should be reported because they could cause your score to remain lower than it should be. Some common errors include incorrect account balances and accounts that are reported delinquent . Here’s a great resource from the FTC on how to dispute errors.
Are UK credit scores the same as the US?
The UK has the same 3 credit bureaus like in the US. However, it appears that instead of the credit bureau providing the credit score to the lenders, it looks like the lenders compute their own credit scores for individuals
“In the UK, lenders often have their own credit scores based on their own models and don’t use the scores provided by the credit bureaus. The scores and ratings at the credit bureaus are, instead, almost strictly used for educating the consumer about their credit.”
Also, US credit scores ranges from 300-850. UK scores depend (like Equifax UK has scores 0-999, while Transunion UK has 1-5).
AU credit reporting systems seems to be very similar to the US, in that credit reporting agencies compute the credit score. Still 3 agencies (Equifax, Experian, and then a third one… CheckYourCredit). Scores can range from 0 to 1,000 or 1200. Here’s the site I used:
Remember, where ever you are in the world, if the information they hold about you is wrong or just simply out of date that might be bringing your credit score down and could mean that you’re missing out on some sweet low interest deals for your existing debt, or you are paying far too much for the debt that you already have. Getting these issues rectified could mean you can reduce the cost of your current credit right now!
It’s free to check and depending on how much you owe and the current state of your credit report, it could save you a lot of money every year.
Don’t forget that in these times of extreme crisis there is government help available; don’t miss out on your entitlements. It costs nothing to check and you could save $thousands!
Watch this video for some really helpful information on how you can increase your credit score and get better deals on your loans, mortgages and credit cards.
How To BOOST And Repair Your Credit Score To 720 In Record Speed Time
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