Reading & Understanding Your Credit Report & Score -

Reading & Understanding Your Credit Report & Score

The moment you apply for a credit card or loan, lenders check your credit report to determine if they should lend to you or not. Your FICO (Fair Isaac Corporation) credit report shows lenders the status of your financial health based on your financial activity.

Your credit report is a detailed reference of your borrowing history, outstanding balances, payment history and more. It also shows your spending discipline and ability to pay. Financial institutions use the information in your credit report to make their lending decision.

Understanding your FICO credit report and score is one of the most important things you can do to maintain good financial health. Checking your credit report helps you understand where you can make improvements to ensure you get approval for credit.

What’s a credit score and why is it so important?

Based on the credit-related activity in your credit report, you are assigned a 3 digit credit score. Think of your credit score as a grade that equals your creditworthiness.

FICO credit scores range from 300-850. Credit bureaus may use different scoring models but the highest score is always the best score. A high credit score represents someone who is the most financially responsible. Your FICO credit score helps lenders make a quick lending decision.

How does my credit score impact me?

When you apply for a loan or any type of credit, your FICO credit score is a lender’s first impression of your financial health.

Before looking at your full credit report, financial institutions first check your credit score to see if you are eligible. They won’t consider your application if your credit score is too low or doesn’t meet their requirements.

If your credit score is high, financial institutions are more likely to consider your application. The higher the score, the more likely you are to be approved.

How does my credit score impact my finances?

Your FICO credit score has a significant influence over your financial health. If you have a very low or bad credit score, you run the risk of not getting approved for credit. You miss out on the many benefits of having good credit.

You’ll reap the benefits of good credit by using your credit responsibly, making on-time payments, and maintaining a good income/debt ratio.

What are the benefits of a good credit score?

FICO credit scores are often the deciding factor when financial institutions consider your credit or loan application. Because of this, it’s extremely important to maintain a good score.

Here are some advantages to a good credit score:

Easy approval of credit. Financial institutions base their credit approval on how high your FICO credit score is. Lenders need to know that you have a history of being financially responsible before they lend to you. A good FICO credit score helps you get approved for a home loan, credit card, line of credit, mortgage loan, car loan, or even a personal loan.

Low interest rates. A good credit score can qualify you for the lowest interest rate. A good FICO score saves you money because you’ll pay less in interest. If you have a low score, you may still be approved for credit, but it will most likely be with a high interest rate. The higher the credit score, the lower the interest rate and the best terms.

 Quick approval for housing.With a good credit score, you’re more likely to get approved to rent or lease your home. And if you’re looking to buy, having a good FICO credit score helps financial institutions approve you for a home loan.

Besides affecting your chances of getting a loan, a good credit score gives you more negotiating power. You’ll be approved for higher spending limits and you may not have to pay a security deposit or high deductible.

How do late payments affect my credit rating and credit limit?

When lenders consider giving you credit, they also base their decision off of your payment history. One late payment might not seem like a big deal, but it can seriously affect your credit score and credit limit.

Limited access to credit.Potential lenders will view your late payment as risky behavior and will question your ability to pay your bills. Even if you have a good credit history, one late payment could tarnish your reputation, making it difficult to access credit in the future.

Lower credit limit and score.When a financial institution sees a late payment, they may protect themselves by lowering the amount of credit you have available. This can also lower your credit score.

Late payment fees.Not only does a late payment limit your access and lower your credit limit, you’re likely to be stuck paying expensive late payment fees.

Bad financial reputation. Your late payment is reflected on your credit report and the financial institution will report your late payment. This alerts other lenders of your potentially risky payment history.

Once your credit rating has been tarnished, it takes a lot of time and effort to raise your score. You can’t simply erase your bad credit, so it’s crucial to be timely with your payments.

What’s in a credit report?

You credit contains your FICO credit score, personal information, contact information, employment information, account information, and the number of credit inquiries you have.

How do you read a credit report?

Your FICO credit report consists of six sections that give detailed information about your credit score and history:

Personal Information.

Your name, address, Social Security number, date of birth and employment information are used to identify you. Personal information does not impact your credit score. This information comes from the information you supply to financial institutions.

Account Information.

Trade Lines are your credit accounts. This includes the type of account (credit card, auto loan, line of credit, mortgage, etc.), outstanding balance, credit limit or loan amount, the date you opened the credit, and the payment history.

Credit Inquiries.

This is the number of times you’ve applied for credit and authorized a lender to check your credit. When you check your own score, it’s called a soft inquiry and it does not affect your score. When a lender checks your score, it’s represented as a “hard inquiry” and it can negatively impact your score, if you don’t get approved.

 Public Record and Collections.

The credit bureaus also collect public record information (bankruptcies, civil lawsuits, etc.) and information from collection agencies such as overdue debt.

How does it relate to the credit score?

Think of your credit report as a report card of your financial health. It shows how well you keep up with your credit accounts and loans, and shows how well you manage your outstanding balances.

Your credit score is a numerical representation of your credit report. It’s calculated by the information in your credit report: loan amounts, payment history, and your overall finances.

How can I get a copy of my credit report and check FICO?

If you are planning to apply for credit or a loan, it’s a good idea to check your credit report for errors. The credit bureaus don’t collect the data on their own, they use the information provided to them by financial institutions. It’s possible errors exist as the information is compiled.

Parents should also request a copy of their child’s credit report. Most children under the age of 18 won’t have a credit report. You should check FICO to make sure they are not a victim of identity theft or credit fraud.

How to check FICO Score Online

Order online from annualcreditreport.com, the only authorized website for free credit reports, or call 1-877-322-8228. You will need to provide your name, address, social security number, and date of birth to verify your identity.

The fastest way to get your FICO credit report is online. You’re entitled to one free copy of your credit report from each of the 3 bureaus, every 12 months. To access your free online copy, fill in the application form on www.annualcreditreport.com. You’ll need to verify your identify by providing details that include name, address, social security number, and date of birth. Or you can call 1-877-322-8228.

You can also get a free FICO score online through Credit Karmaand Credit Sesame. They both give you a free online FICO report with regular updates to help you monitor your credit score.

How to check your FICO report by mail

Another way to check your FICO credit score is offline via mail. Complete the Annual Credit Report Request Formand mail it to:

Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

It’s not necessary to contact the credit reporting bureaus individually. They provide free annual credit reports only through annualcreditreport.com, by phone or by mailing to Annual Credit Report Request Service.

Who oversees credit reporting?

The Federal Trade Commission (FTC) oversees the credit reporting bureaus. The Fair Credit Reporting Act was created to promote the accuracy, fairness, and privacy of information in the files of consumer reporting agencies (CRAs).

Major credit bureaus

While there are many different credit bureaus in the US, the three major credit reporting agencies are:

  • TransUnion
  • Equifax
  • Experian

These credit reporting agencies use data they’ve collected about your finances and use the information to generate a credit report and score.

What if I find an error in my credit report?

Because credit reporting errors can happen, checking your credit report is important.

If there is an error, you will need to work with your lender and credit bureau to resolve it. That way, your credit isn’t negatively impacted by incorrect information.

Fixing errors in a credit report

Going to a “credit repair” company and paying a large amount of money to fix the error isn’t necessary. In most cases, you can fix the error by contacting both to the lender and the bureau to have your records corrected.

Your credit bureau can’t change your credit report on its own. Your financial institution has to send the approval to the credit bureau to make the changes in your credit report.

Filing a complaint

All three of the credit bureaus now accept the filing of disputes online. Experian and Equifax only accept online disputes.

To correct errors on your credit report, you need to contact the credit bureau that is showing erroneous information. Use the following contact information to reach each bureau:

Equifax

Equifax Disputes

Experian

Experian Disputes

TransUnion

TransUnion Disputes

1-800-916-8800

TransUnion Disputes

2 Baldwin Place, P.O. BOX 1000

Chester, PA 19022

You can expect the resolution to take around 30-90 days. It can conclude sooner if the financial institution takes less time with their part of the process. Remember, FICO itself cannot edit your details, but it will contact your financial institution if your dispute is legitimate. FICO generally takes around seven days to update your credit report.

If you are not satisfied with the manner in which the dispute was resolved, you may initiate another fresh complaint. Or you may consider hiring a lawyer to help resolve your dispute.

Earning and maintaining good credit is key to financial health. It’s important to be vigilant in checking your report and score, to make sure there isn’t any incorrect information. Not only will this protect your credit score, it will protect you against identity theft.

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