01
Sep

credit report

As we move deeper into the world of instantaneous digital communication, you’re probably hearing a lot more about credit reports. And that’s a good thing.

But the way those reports are generated, the details that go into them, and ways you may be able to check on and get help in fixing erroneous items contained in your reports – probably warrants a bit of clarification, as they can be mysterious to most consumers.

Your credit report, which forms the basis for your credit rating, is indeed a bit like that much-feared “permanent record” we were all warned about in high school. Unlike bad grades, bad credit and bad credit behavior can have much more significant impact on your adult life.

A credit report is a collection of data points and details about your experience as a consumer. That includes information on what you owe on your credit cards, how many cards you hold, and how long you’ve had them, plus details on your student loan accounts or your mortgage.

More serious information, such as public records about bankruptcies, a criminal record or any history of unpaid accounts or collections, will also appear. With all of that slightly murky information out there, you may even begin to wonder how long items stay on your credit report, as well.

If you’ve applied for a new card, are signing a lease for an apartment, or have been asked for a credit background check while applying for a job, you’ll be agreeing to have your credit pulled.

Dealing with the Three Credit Bureaus

All of those varying pieces of information are tracked and accumulated by three different companies – Equifax, Experian and Transunion – known as credit bureaus. Credit inquiries from a lender, a leasing company or even a new employer go to them, and they will provide a copy of your report to the party that asks, the cost of which sometimes goes into the “application fee” you’re asked to pay while searching for a new place to live.

It’s important to know that the underlying rules by which each operates come from FICO, the original consumer credit ratings service in the United States. FICO, the Fair Isaac Corporation, pioneered the concept of credit ratings based on credit history, and lenders (and the three private credit bureaus) officially began using the FICO scoring system in 1989.

While all three bureaus collect the same types of information, such as your history of payments, your revolving credit accounts, and how long your accounts have been active, each is a bit different in the way it synthesizes those factors to produce your overall credit score.

Same Data, Different Results

The material that goes into a particular bureau’s credit report – and ultimately the way it generates your overall credit score – is based on a common set of financial factors, part of that semi-permanent record of your financial behavior.

While some of those details can indeed last forever, such as unpaid federal student loans or a criminal history, others tend to have a much shorter shelf life and will eventually “fall off” of your report, or can even be modified or erased if they are shown to be incorrect.

Why, then, might you have a different credit score from each of the different bureaus, if they’re all using essentially the same information? Sometimes, it’s just a matter of bookkeeping. If you’ve applied for a credit card or a loan using a modified version of your legal name – Sam versus Samantha, perhaps – that can cause some discrepancy in the details.

Some may also have older information than the others regarding your recent credit activity, such as a big payoff on one of your cards. And all three just simply use that data in different ways, such as the way they view an outstanding balance on one card.

Common Factors in Your Credit History

The basics, however, are consistent, and they include the following five factors, all of which accurately demonstrate your financial activity and your creditworthiness.

  • Payment History – Creditors like to know that you’re able to keep up in a timely fashion with your financial obligations, so a history of your on-time payments is a major factor in the makeup of your credit report (some 35 percent of the total score). If you’ve been late more than few times or entirely missed payments, those will factor into your credit score.
  • Credit Utilization – Have you overextended your credit, or are you using your resources wisely? The golden number here is 30 percent: Ideally, you should be using less than 30 percent of your available credit, which demonstrates you can handle your obligations. That number applies not only to the credit load on each card or account but your overall credit available, so be careful in the amount you use.
  • Length of Credit History – The credit bureaus also appreciate a level of financial maturity, which one can only achieve by having an account open, active and in good status for several years. Folks should be wary of the old idea of chopping up a credit card or closing an account to help limit overspending, as the length of time an account has been used is also a big factor in evaluating credit.
  • New Credit – Have you been applying for a variety of new cards? Those inquiries about your credit can themselves stick on your credit report for up to two years, and can be seen as potentially negative items. As mentioned above, the longer an existing account has been in action, the better, though newly-activated credit can eventually generate positive results for your score.
  • Overall Credit Mix – A holistic overview of your mix of revolving credit accounts, car payments, student loan obligations, mortgage or monthly rental payments, and other credit factors can also give the bureaus an indication of how effectively you can handle your credit. If you’re overextended in one area, or it’s clear you’re spending way more than you should be on debt servicing, your score may suffer.

If you’ve seen the results on your credit report and you’d like some professional help in credit repair, we can help.

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