As you establish credit, you are also building a credit rating resulting in a
record of creditors’ experience with you as a borrower. It is this report that
future lenders, employers, landlords and other businesses review to make their
own decisions about your creditworthiness.
Your credit report is a month-by-month record of your payment history with
financial institutions or credit card issuers (companies that grant credit).
It shows:
- How much credit you are using.
- How well you pay your debt.
- Who is inquiring about your credit.
- Information on bankruptcies or federal income tax liens.
Failure to pay your creditors on time can lead to a bad credit rating.
Bankruptcy will remain on your credit record for 7 to 10 years, depending
on the type of bankruptcy that is filed. Good credit information can remain
on your report indefinitely.
Your credit history is compiled by a credit reporting agency, a central
clearinghouse that provides credit reports to banks or businesses that consider
issuing you credit. The Annual Credit Report Request Service is a centralized
contact for individuals to request annual credit reports. It was created by the
three nationwide consumer credit reporting agencies: Equifax, Experian and TransUnion.
Visit the Web site at www.annualcreditreport.com
to request a free annual credit report.
Order A Free Credit Report
You may request and receive a free credit report annually from any or all of the
three major credit reporting agencies. One strategy would be to order your free credit report
every 4 months from one of the three agencies.These agencies also sell various financial
products and services, which you are not required to purchase. You are entitled to
a free credit report anytime if you have been denied credit, are a victim of identity
theft, receive welfare benefits or are unemployed but expect to apply for employment
in the next 60 days.
A poor credit rating could mean you will be denied a loan or credit card or incur
higher interest rates. You could also be turned down for insurance, an apartment or
even a job.
Review your credit report at least once each year to ensure it is accurate
and that you are not the victim of identity theft. It is also important to check
your credit report before you apply for a mortgage or other major loan.
Your Credit Score
In addition to your credit report, creditors will also look at your credit score.
Your credit score is a 3-digit numerical summary of your credit report.
Credit scores range from approximately 300 to 850.
The higher your score, the better.
Most lenders consider scores above 700 good credit risks, while scores below
620 may indicate credit problems. A low score may cause you to be denied credit.
With a slightly higher score you could get credit but at a higher interest rate.
If your score is high enough, you may qualify for the best rate on a loan or credit
account.
Credit scores are determined by several factors. No single piece of information
determines your score. But one or more of the factors may affect the final score
more significantly than others depending on the overall information in your credit
report.
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Factors Determining Credit Scores
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- Payment history.
- Length of credit history.
- Types of credit used.
- Amounts owed.
- New credit.
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Your score can also change as new information is received by credit reporting
agencies and credit scores will vary by agency depending which agency your creditors
report to. Your score today could be different than the score you have 3 months from
now.
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Basic Money Management
Basic Money Management
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