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What is a credit report?
In much the same way that a resume
displays your work experience to a prospective employer,
a credit report provides prospective creditors (and in
some cases employers and insurers too) with a detailed
picture of your credit history.
The three major credit reporting
agencies are Equifax,
Experian,
and TransUnion.
These agencies, which are also called "bureaus," collect
and report information about consumers' financial habits
and put the information into a credit report.
Each agency's reports contain the
same basic information: name, Social Security number,
current and previous addresses, details about loans and
how they've been handled,
public record information such as bankruptcies, court
judgments, or liens, and a list of companies that have
reviewed your credit.
In most cases, your credit report
influences whether or not you will receive what you are
applying for.
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What is
a credit score?
A credit score number is often
called a FICO score, for Fair, Isaac and Co., the California
company that developed the system upon which it is based.
The score is supposed to distill all the information in
your credit report, using a formula to calculate a single
number that indicates your credit worthiness.
It's designed to give lenders a
fast, accurate prediction of the risk involved in giving
you a credit card or loan. Lenders have attested to the
score's value in streamlining the underwriting process
and creating more opportunities for consumers to get mortgages
as well.
Scores range from the 300s to about
900, with the vast majority of folks falling in the 600s
and 700s. The higher the score, the better.
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What factors
determine my credit score?
When determining how high a score
will be, five characteristics are considered above all.
In order of score significance:
- Past delinquency: People
who have failed to make payments in the past tend to
do the same in the future.
- The way credit has been
used: Someone who is maxed out or close to the limit
on a credit card is considered a greater risk than someone
who doesn't look at the high credit line as a license
to print money.
- The age of the credit file:
Fair, Isaac's model assumes people who have had credit
for a long time are less risky.
- The number of times a person
asks for credit: The system frowns upon those who
have initiated several requests for credit cards, loans
or other debt instruments over a short period.
- A customer's mix of credit:
Someone with only a secured credit card is generally
riskier than someone who has a combination of installment
and revolving loans. (On installment loans, a person
borrows money once and makes fixed payments until the
balance is gone, while revolving borrowers make regular
payments, each of which frees up more money to access.)
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5 reasons to
check your credit:
Ideally, your credit report is
an accurate, up-to-date reflection of your credit history.
However, since we don't live in an ideal world, there
are many reasons that your credit report could contain
inaccuracies that might prevent you from receiving the
credit you deserve. The good news is you can take action
to keep your report accurate.
Here are FIVE REASONS why
you should make a practice of regularly reviewing your
credit report:
- Inaccuracies & Mixed Credit
Files: Many inaccuracies on a credit report can
be the result of simple human error, and are therefore
are not difficult to dispute. Whether the inaccuracies
relate to payments not credited, late payments, or data
mixed in from the credit file of someone else with a
name similar to yours, you will want to contact the
credit bureau to dispute inaccurate information promptly.
- Tracking & Payments:
One of the most important elements of credit is a demonstrated
history of on time payments. Once you send the check
though, anything can happen--a delay in the payment
being received can kick you over to a 30-day delinquency.
This has a negaive affect on your credit, and creditors
don't take it lightly. If you call your creditor and
explain the situation, they might adjust the info, but
you need your credit report to know whether you have
a delinquency or not.
- Identity Theft: This
issue alone is reason to order your credit report immediately.
Identity theft is an insidious crime, involving a thief
who assumes your name to open new accounts, divert your
card statements to another address, and run up all sorts
of bad debt without you ever knowing about it until
collectors come calling. The best way to catch a thief
who is using your name is by getting a copy of your
credit report, which will show you if there are accounts
listed you know you haven't opened. For example, if
a thief has intercepted a pre-approved credit card offer
in your name and sent it in with a change of address,
your credit report will include the account.
- Inquiries: If you're
shopping around for a loan or more credit, you should
know when creditors check your credit, it places an
inquiry on your credit report. Inquiries can add up,
which is often interpreted as negative by creditors.
For this reason, too many inquiries can actually make
getting credit more difficult. Moreover, if you didn't
authorize someone to look at your credit report and
they did, they may have broken the law. Who's been looking
at your credit?
- Credit Fraud--Unauthorized
Charges: Credit fraud involves the theft of your
credit card or account number to make unauthorized charges
to your account. Though consumers are protected financially
from this abuse, other creditors may take note of all
this activity and decide to raise your interest rates
or refuse to grant you a loan. Ordering your credit
report will help you catch new activity on accounts
that you haven't been using, or may have closed. When
it comes to managing your credit worthiness, your credit
report is your best resource. Your credit report gives
you the opportunity to manage your credit wisely today,
while planning your credit strategy for future goals.
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