Your Credit Report
Recent studies have shown that ninety percent of Americans have at least one credit card – and they are using that card – A LOT!
The average family carries a balance of between $7,000 and $10,000 on all their credit cards. Over $1,000 per family goes on interest every year. And that’s just the average – some people owe much more!
Overall, Americans spend over $1 trillion every year on their credit cards, and owe more than $500 billion of it. If debt continues at the current rate, then one family in a hundred will be forced into bankruptcy. Over 90% of Americans’ disposable incomes are spent paying back debts.
When you add credit card debt to the regular bills we have to pay each month, which can tax anyone’s budget. As a result, some bills go unpaid and others are paid late.
Both of these instances can damage your credit sometimes so much that you think there’s no way you’ll ever be able to get out of debt and get credit for something important like a home or a car.
The truth is that you can get out of debt and repair your credit nearly to what it was before you had credit problems. It takes some time and a little work on your part, but it IS possible.
Loan approvals and such depend on your credit score. That number is what determines if you can get credit, what your interest rate will be, and how much money potential lenders will give you. A good median score is 750, but the higher your score is, the more financially sound you are.
While it’s always a good idea to try and stay away from credit, not everyone has a hundred thousand dollars lying around to buy a home or twenty thousand to buy a car. Heck, for some people, scraping together five thousand dollars for a good used car is difficult. That’s why we need credit. So we can buy that which we cannot afford.
Where the trouble comes in is when people begin to buy everyday items such as groceries and clothing on credit cards. Then those bills begin to get bigger and bigger until pretty soon, they’re paying the minimum amount due which will take forever to pay off. Plus, a lot of people just continue charging things even when they have a large balance on their account.
Your credit score defines who you are to businesses and you want it to be as high as it can be. It doesn’t matter how bad your credit is now. There are ways that you can raise your credit score no matter how low it is now. Don’t despair; just get started – right away!
Improving Your Credit Score
The very first step you need to take when trying to raise your credit score is to find out what your score is and what it means. Legislation called the FACT Act was passed that allows all Americans to get one free copy of their credit report every year. This report lists all of your debts you’ve had and your payment history on those debts.
It will tell you where you owe money, how much you owe, and how you pay (on time, 30 days late, etc.). All of that information is compiled together and then analyzed.
After the analysis, a number is assigned to you as to what your credit fitness level is. Potential creditors then look at your credit score and decide if you are going to be able to pay back the amount of money you are requesting to borrow.
That’s the short version. Actually, there is much, much more involved in determining your credit score. However, what should be important to you knows how to read your credit report and how to raise that score so that you are able to get the things you need. Remember that – the things you NEED, not the things you WANT!
Let’s start with how to get your credit report in the first place. There are three major credit reporting agencies that will offer you the one free credit report you get each year. They are Experian, TransUnion, and Equifax. You can contact each of them directly in the following ways:
If you do want to do this by mail, send your request to Equifax Information Services, LLC; Disclosure Department; P.O. Box 740241; Atlanta, GA 30374. You can also call them at 1-800-685-1111.
There are also a myriad of websites who will also allow you to download your free credit report from their websites, but they ultimately will just be forwarding you to one of the above websites anyway. However, they are worth checking out for the information that you can find on them. Here are a few:
You can also download the mail in form here (thus avoiding the ads and enticements to buy something. Plus have a real hard copy of your reports.)
The main thing is that you will want to get your free credit report in order to find out where you stand and how far you have to go to repair your credit. Most of the time when you download your credit report, you will be able to view and save it instantly. Save it to your computer’s “My Documents” file if you can. That way you’ll be able to print it out and refer to it as much as you need.
Also, some of these sites offer low-cost memberships that will alert you if a new item comes onto your credit report. Their services will offer many different things, but purchasing a membership is strictly voluntary and probably not necessary if you want the straight truth.
Once you get a copy of your credit report, it’s important to know how to read it. There are going to be an awful lot of numbers, abbreviations and terms you've never seen before. Trade lines, charge-offs, account review inquiries -- how do you read this thing?
Even though you get one free credit report each year, experts suggest that if you are serious about improving your credit score, you need to examine a report from each of the three major credit reporting agencies. This will, however cost you a small fee from the other two, so keep that in mind.
Why do they suggest you have all three? Creditors can pick and choose which credit reporting agency they want to report to. Some will report to all three, but many won’t. You may find that what is included on one report isn’t on another. The reports will have different information because it's a voluntary system, and creditors subscribe to whichever agency they want -- if any at all.
A credit report is basically divided into four sections: identifying information, credit history, public records and inquiries.
Identifying information is just that -- information to identify you. Look at it closely to make sure it's accurate. It's not unusual for there to be two or three spellings of your name or more than one Social Security number. That's usually because someone reported the information that way. The variations will stay on your credit report. If it's reported wrong, leave it because it might mess up the link. Don't be concerned about variations.
Other information in this section might include your current and previous addresses, your date of birth, telephone numbers, driver's license numbers, your employer and your spouse's name. The data in this section is often used to verify your identity or to confirm that the information you provided for an application is accurate. Small variations in this data between the three bureaus are normal as each agency may have their own recording procedures.
The personal information section of your credit report may also include a "consumer statement." This is a statement that you asked the credit reporting agencies to add to your report. Commonly, this statement is used to explain a record on your report.
For example, "The Smith Bank account from 2004 was a shared account with my ex-husband." This statement does not impact your credit score but may help you clarify a situation to a potential creditor or lender and improve your chances to obtain credit.
The next section is your credit history. Sometimes, the individual accounts are called trade lines. Each account will include the name of the creditor and the account number, which may be scrambled for security purposes.
You may have more than one account from a creditor. Many creditors have more than one kind of account, or if you move, they transfer your account to a new location and assign a new number. The entry will also include:
On Experian's report, your payment history is written in plain English -- never pays late, typically pays 30 days late, etc. Other comments might include internal collection and charged off or default. Charged off means the creditor has given up, thrown in the towel. Basically, the company has made efforts to collect the debt, realized that it’s not going to be paid, and subsequently wrote it off.
Other reports use payment codes ranging from 1 to 9; an R1 or I1 on a report is an indication of a good payment history on a revolving or installment account. Often, the code key will be listed on the report so you can better understand what the codes mean, but they may not.
Credit accounts are divided into five categories: real estate, installment, revolving, collection and other. Here is a better description of each category:
Real Estate: First and second mortgage loans on your home.
Installment: Accounts comprising fixed terms with regular payments, such as a car loan.
Revolving: Accounts with opened terms with varying payments, such as a credit card account.
Collection: Accounts seriously past the due date that have been assigned to an attorney or collection agency.
Other: Accounts where the exact category is unknown. This could include 30-day accounts, such as an American Express card.
Your credit report lists a summary of the details and terms for each account. This summary includes information about the account number, condition, balance, type and pay status for each account. The summary for collection records is slightly different.
The following information is for real estate, installment, revolving and other type records:
A portion of the number is hidden for security reasons. A partial account number is all that is needed to file a dispute about the record.
For each account, the report also displays an illustrated payment history over the last 24 months. There will be a key at the top of this section describes each payment history symbol and what it indicates for your account. Green boxes marked "OK" show that your payment was made on time.
Most credit reports also give you more in-depth information about specific accounts. This is also an important part of the credit report you’ll want to review for accuracy.
The following information may be reported for your account in this section:
Collection accounts are accounts that are seriously past due and have been transferred to an attorney, collection agency or creditor's internal collection agency. As your debt is transferred between different agencies, you may see several records on your report for the same debt.
Only one record should be marked as open at a time. All the collection records and the original debt record will expire from your credit report at the same time. Collection records use a unique summary format on your credit report:
The next section is the part you want to be absolutely blank. The public records section is never a good story. If you have a public record on there, you've had a problem that has required litigation. It doesn't list arrests and criminal activities; just financial-related data, such as bankruptcies, judgments and tax liens. Those are the monsters that will trash your credit faster than anything else.
Here are definitions of the eight types of public records you could see listed on your credit report:
The summary information listed for each of these types of public records can vary. Here are some definitions of common record categories:
If the public record is a bankruptcy, three other fields will be visible.
The final section is the inquiries. That's a list of everyone who asked to see your credit report. Any time anyone gets into the report, it'll post an inquiry. That means if you try to apply for a credit card, it’s listed as an inquiry. Have you been shopping for a car? Every time a dealership runs a credit report, it shows. If you call the credit bureau and ask for a copy, it will be on there. It's a very detailed entry record. Generally, this is great for the consumer.
Inquiries are divided into two sections. "Hard" inquiries are ones you initiate by filling out a credit application or taking your child to the orthodontist. "Soft" inquiries are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account.
You may have heard that a large number of inquiries can have a negative impact on your credit score, but you're probably OK. The vast majority of inquiries are ignored by the FICO scoring models. They're not the steak in the steak dinner, so to speak.
For instance, the model has a buffer period that ignores inquiries within 30 days of getting a mortgage or a car loan. It also counts two or more "hard" inquiries in the same 14-day period as just one inquiry. You could have 30 in two weeks and it only counts as one.
However, on the other hand, having a lot of credit inquiries on your account could also show potential creditors that you are trying to live your life on credit which means you might not have the means to pay back the debt. This is especially true if you’ve been applying for a lot of credit cards. And there are always many opportunities to apply for a credit card.
Of course, you know about all of the offers that come in the mail. They usually read “You’ve Been Approved!” as an enticement for filling out the application. This is not always true with pre-approval offers, so proceed carefully. I usually shred them up and forget them.
Another time that you will be asked to apply for credit occurs in public places and the companies are offering products for free in exchange for a credit application. I was at a baseball game recently and one credit card company was offering free team T-shirts and all I had to do was fill out their credit card application. I didn’t do it, but what an enticement – especially for a fan!
Watch out, too, when you are shopping at your favorite department stores. They also have store credit cards and may offer you a percentage off your purchase in exchange for a credit application. In general, this is not a bad idea – which we will talk about a little later in rebuilding your credit – because store credit cards are great when helping rebuilding your credit.
The bottom line is that if you don’t need another credit card, don’t apply for one. It’s always good to have one on hand for emergencies, but having five or six can just be a temptation to spend beyond your means.
There may also be a section on your credit report that lists creditor information. The creditor contact section lists the name and contact information for each creditor that appears on your credit report. This can also include the contact information for creditors that have made inquiries.
Each creditor's address is listed to the right of the creditor's name. When available, a phone number is listed for the creditor. Creditors without listed numbers should be contacted by mail.
So that’s the first step – getting your credit report and going over it with a fine tooth comb. But where’s that magic number – your credit score? Let’s begin with a short section on the credit score itself and where it comes from.
***Note: This article is from a website that was recently merged into this site and may not represent the views of the sites owner. ***
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