Coming to Understand Your Credit Report
A Credit Article Contributed by Bill Tannebring
Good Credit, Bad Credit, No Credit. How Do These Affect My Credit Report?
"Credit" is simply another way of talking about borrowing money, with an agreement to pay it back in the future and how you handle this transaction is reflected in your credit report, "Good credit" means that you've established a track-record (or "history") of paying what you owe on time. This makes lenders feel confident about lending you money. It also helps you qualify for a mortgage at the best interest rate. "Bad credit" means a history of not paying bills on time and letting debts build up.
This makes it harder to qualify for loans or to get low interest rates. No credit" just means you haven't obtained a credit card or borrowed money from a lender-so there's no record of your ability to repay the money on time. And those are the basics. Pretty simple, isn't it?
Knowing the Score. What a Credit Report is. What It Does
Every time you use your credit card or make a loan payment, your actions become part of your credit record. This provides a way of keeping track of how well you handle credit. Everything that makes up the credit record is listed on your credit report. Lenders rely on credit reports to decide how likely you'll be to repay any money they lend you.
Establishing a Good Credit Report. How to Get It and Keep It
* Pay all your bills on time.
* Open a checking or savings account.
* Apply for a credit card with the lowest possible interest rate.
* Control your debt; don't miss payments.
* Keep within a reasonable budget.
* Submit your full legal name on all credit applications.
Since all the information in your credit report is about you, take the opportunity to review it annually. Make sure that all the information is correct, because lenders, landlords, and employers frequently use it. If you find any mistakes, the law requires the credit-reporting agency to make corrections. Here's what your credit report contains:
* Your name, past and present addresses, date of birth, and Social Security number.
* A listing of past and present employment.
* Details about your debts and obligations over the past seven years.
* The payment history for your loans or credit card(s).
* Anything of public record, including bankruptcy and tax liens.
Credit Reporting Agencies
Most lenders want to see reports from all three companies; here's who they are:
* Equifax. (800) 685-1111 · www.equifax.com
* Experian. (888) EXPERIAN (397-3742) · www.experian.com
* TransUnion. (800) 888-4213 · www.transunion.com
Keeping Score. How the Numbers in Your Credit Report All Add Up
Lenders will often request what's called a FICO score, to help decide your eligibility for a loan. If you're applying for a home loan, lenders may also consider factors such as income, employment history, amount in your savings account, number of times your credit information has been requested, type of loan you're applying for, and the value of property. These can help determine whether you'll qualify for a loan-and the interest rate that you'll pay, too.
How to Create a Credit History When You Don't Have One
If you have a limited credit history, or even none at all, many lenders offer flexible home loan options which consider other ways to establish credit worthiness, such as timely payments of rent and utility bills. So even if you've never had a credit card or taken out a loan, you can still create what's called a nontraditional credit history to demonstrate your responsibility to lenders. Here's how:
o Retain copies of monthly bills such as rent, telephone, and utilities.
o Keep canceled checks for the past two years to show you've paid your bills on time.
o Request a reference letter from your landlord, phone company, or utility stating the duration and favorable payment history for your account.
o Apply for a credit card with a low interest rate and be sure to make your payments on time.
o Always pay all your bills on time.
Smart Credit Habits
Get what you want by doing what's right.
Once you achieve good credit, you could be on your way to an auto loan, a mortgage-whatever your goal may be. Remember, your credit record reflects your financial behavior. And you have the power to control or change it.
