Understand Your Credit Report and Credit Score

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Understand Your Credit Report and Credit Score

• Make the Most and Minimize the Mess

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• Your credit history can affect many parts of your
  life. Lenders, potential employers, and landlords
  just to name a few can all legally access
  your credit history, and often do.
• To determine how good a credit risk you are,
  lenders often buy both a credit report and a
  credit score from the three major credit
  reporting agencies Equifax, Experian, and
  TransUnion.

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• Whats in your credit report Your credit report
  is a detailed list of your credit history. Part
  of what it includes is
• The type of credit you have (credit card, auto
  loan, mortgage, etc.)
• Your credit limit or original loan amount
• Your account balance (or the total balance of
  your last statement)
• Your payment history (late payments stay on your
  credit report for seven years)
• Bankruptcies (stays on your credit report for 10
  years)
• Identifying information such as your name, date
  of birth, and employment history is listed on
  your credit report, but is not used to determine
  your credit score.

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• How to check your credit report
• You should review your credit report at least
  once a year to check for errors or fraud, and
  also before making a big purchase like a house or
  a car.
• Residents of most states can get one free credit
  report from each of the three credit reporting
  agencies once a year through www.annualcreditrepor
  t.com.
• To get credits reports more often than once a
  year, you can order your credit report for a
  small fee.

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• Credit scoresA credit score also known as a
  credit rating is a numeric value based on the
  information contained in your credit report. That
  score (usually between 300 and 850) tells the
  lender the level of future risk associated with
  your credit history. The higher the score, the
  lower the risk.
• Credit bureau scores are often called "FICO
  scores" because many credit bureau scores used in
  the U.S. are produced from software developed by
  Fair Isaac Corporation (FICO).
• While many lenders use credit scores to help them
  make their lending decisions, each lender has its
  own criteria. There is no single minimum credit
  "cutoff score" used by all lenders, and there are
  many additional factors that lenders use to
  determine your actual interest rates.

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• Tips for Raising your Credit Score
• Raising your credit score is a bit like losing
  weight it takes time and there is no quick fix.
  In fact, quick-fix efforts can backfire. The best
  advice is to manage credit responsibly over time.
  Follow these suggestions from Fair Isaac
  Corporation, the creators of the FICO score.
• Improve your payment history
• Pay your bills on time. Delinquent payments and
  collections can have a major negative impact on
  your score.
• If you have missed payments, get current and stay
  current. The longer you pay your bills on time,
  the better your score. But also be aware even if
  you pay off a collection account, it will stay on
  your report for seven years.
• Contact your creditors or a legitimate credit
  counselor if you're having trouble making ends
  meet. This won't improve your score immediately,
  but if you can begin to manage your credit and
  pay on time, your score will get better over
  time.
• Lower your amounts owed
• Keep your balances low on credit cards and other
  "revolving credit." High outstanding debt can
  affect a score.
• Pay off debt rather than moving it around. The
  most effective way to improve your score is by
  paying down your revolving credit.
• Don't close unused credit cards as a short-term
  strategy to raise your score. Owing the same
  amount but having fewer open accounts may lower
  your score.
• Don't open new credit cards you don't need, just
  to increase your available credit. This approach
  could backfire and lower your score.

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• Tips for Raising your Credit Score (cont.)
• Make the most of the length of your credit
  historyIf you've been managing credit for a
  short time, don't open a lot of new accounts too
  rapidly. New accounts will lower your average
  account age, which will have a larger effect on
  your score if you don't have a lot of other
  credit information. Also, rapid account buildup
  can look risky if you are a new credit user.
• Getting new credit
• Do your rate shopping within a focused period of
  time. FICO scores distinguish between a search
  for a single loan and a search for many new
  credit lines, in part by the length of time over
  which inquiries occur.
• Re-establish your credit history. Even if you'd
  had problems in the past, opening new accounts
  responsibly and paying them off on time will
  raise your score in the long term.
• Manage the types of credit you have
• Apply for and open new credit accounts only as
  needed. Don't open accounts just to have a better
  credit mix it probably won't raise your score.
• Have credit cards but manage them responsibly.
  In general, having credit cards (and paying them
  on time) will raise your score.

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• Factors That Affect Your Score
• Many lenders use a FICO score a numeric
  calculation of your credit report calculated by
  Fair Isaac Corporation to obtain a fast,
  objective measure of your credit risk. By
  understanding the factors that can help or hurt
  your score, you'll have a better understanding of
  how lenders view you as a credit risk and how
  you can improve your score. Here are the five
  factors that determine your FICO score. The
  levels of importance shown here are for the
  general population, and will be different for
  each individual
• 1. Your payment history what is your track
  record? (approximately 35 of your score)The
  most significant impact on your score is whether
  you have paid past accounts in a timely manner
  (on or before the date the payment was due).
  However, an overall good credit profile can
  outweigh a few late payments, and late payments
  have less impact over time.
• 2. Amounts that you owe how much is too much?
  (30)Part of the science of credit scoring is
  determining how much debt is too much
• In some cases, having a very small balance
  without missing payments shows you've managed
  credit responsibly, and may be slightly better
  than having no balance at all.
• While you don't want to have too many accounts
  open, it's good to have more than one, so that
  you're not using too much of one account's
  available credit limit.
• Owing a lot of money on numerous accounts
  suggests to lenders that you may be overextended
  and more likely to make late payments or make
  no payments at all.

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• Factors That Affect Your Score (cont.)
• 3. Length of your credit history how established
  is it? (15)In general, a more seasoned credit
  history will increase your FICO score. Lenders
  want to see that you can responsibly manage your
  credit accounts over time. However, even those
  people who have not used credit for an extended
  period of time may get high scores, depending on
  how the other information in their credit report
  appears.
• 4. New credit are you taking on more debt?
  (10)Opening several credit accounts in a short
  period of time can represent a greater risk,
  especially for those with newer credit histories.
  According to Fair Isaac Corporation, FICO scores
  try to distinguish between an attempt to obtain
  many new credit accounts and an attempt to obtain
  the best interest rate. FICO scores generally do
  not associate higher risk with shopping for the
  best interest rate.
• 5. Types of credit in use is it a "healthy" mix?
  (10)Your FICO score will reflect your mix of
  credit cards, retail accounts, installment loans,
  finance company accounts and mortgage loans, etc.
  While a healthy mix will improve your score, it's
  not necessary to have one of each, and it's not a
  good idea to open accounts you don't intend to
  use.
• What does not affect your scoreLenders look at
  many things when making a credit decision,
  including your income, employment history, and
  the kind of credit you're requesting. But none of
  those factors are included in your FICO score.
  And neither the lender nor your score considers
  your race, religion, sex, marital status, age, or
  if you receive public assistance.
• FICO scores also ignore self-inquiries, so
  checking your own credit report will not lower
  your credit score. In fact, it's a good idea to
  check your credit report once a year to make sure
  there are no mistakes.

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• Interpreting Your Score
• A credit score, a numeric summary of your credit
  history, generally ranges between 300 and 850.
  But what does the number mean to you?
• What's a good score?There is no single "cutoff"
  score used by all lenders, and there are many
  additional factors besides your credit score that
  lenders use to determine whether to give you
  credit and at what interest rate. So it's hard to
  say what a good score is outside of a particular
  lending situation. For example, one auto lender
  may offer lower interest rates to people with
  scores above, say, 680 another lender may use
  720, and so on.
• How others scoreAccording to Fair Isaac
  Corporation (FICO), this is how FICO scores are
  typically spread among the population

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• FICO Ranges

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• Why your score isn't higherWhen a lender
  receives your FICO score, up to four "score
  reason codes" are also delivered. If the lender
  rejects your request for credit, and your FICO
  score was part of the reason, these score reasons
  can help the lender tell you why your score
  wasn't higher.
• These score reasons are more useful than the
  score itself in helping you determine whether
  your credit report might contain errors, and how
  you might improve your score over time. However,
  if you already have a high score (for example, in
  the mid-700s or higher) some of the reasons may
  not be very helpful, as they may be marginal
  factors related to length of credit history, new
  credit, and types of credit in use.
• Top ten score reasonsThese are the top 10 most
  frequently given score reasons. Note that the
  specific wording given by your lender may be
  different from this.
• Serious delinquency.
• Serious delinquency, and public record or
  collection filed.
• Derogatory public record or collection filed.
• Time since delinquency is too recent or unknown.
• Level of delinquency on accounts.
• Number of accounts with delinquency.
• Amount owed on accounts.
• Proportion of balances to credit limits on
  revolving accounts is too high.
• Length of time accounts have been established.
• Too many accounts with balances.

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• Top Misconceptions About Scores
• Credit scores can be confusing. Empower yourself
  by ordering your FICO score and understanding how
  scoring works. Make sure you know the truth about
  these popular misconceptions
• My score determines whether or not I get
  credit.Lenders use a number of facts to make
  credit decisions, including your credit score.
  Lenders look at information such as the amount of
  debt you can reasonably handle given your income,
  your employment history, and your credit history.
  Based on their analysis of this information under
  specific underwriting policies, lenders may
  extend or decline credit to you regardless of
  your score.
• A poor score will haunt me forever.Just the
  opposite is true. Since a credit score is a
  mathematical calculation, it changes as new
  information is added to your credit history.
  Scores change gradually as you change the way you
  handle credit. For example, past credit problems
  impact your score less as time passes.
• Lenders request a new current score when you
  submit a credit application, so they have the
  most recent information available. So by taking
  the time to improve your score, you might qualify
  for more favorable interest rates and other
  credit terms.
• My score will drop if I apply for new credit.If
  it does, it probably won't drop much. If you
  apply for several credit cards within a short
  period of time, multiple requests for your credit
  report (called "inquiries") will appear on your
  report. Your score may drop if you open numerous
  accounts from different types of lenders within a
  short period of time. But most credit scores are
  not affected by rate shopping, when multiple
  inquiries from different lenders are made within
  a short period of time.

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• Top Misconceptions About Scores (cont)
• My score will drop if I check my credit
  report.Self-inquiries do not affect your score,
  as long as you order your credit report directly
  from the credit reporting agencies, or through an
  organization authorized to provide credit reports
  to consumers. It's a good idea to check your
  credit report once a year.
• People with high incomes have high credit
  scores.Income might affect your ability to get a
  loan, but it does not affect your credit score.
  Only your credit history such as timely
  payments and how much you owe affects your
  score. Regardless of income, if you manage your
  debt responsibly, you can have a high score.
• Credit scoring is unfair to minorities.Scoring
  considers only credit-related information.
  Factors like gender, race, nationality, and
  marital status are not included. In fact, the
  Equal Credit Opportunity Act (ECOA) prohibits
  lenders from considering this type of information
  when issuing credit. Because the credit score is
  mathematically calculated, it treats all
  borrowers the same.
• Credit scoring infringes on my privacy.Credit
  scoring evaluates the same information lenders
  already review the credit bureau report. A
  score is simply a numerical calculation based on
  the information contained in your credit report.