Understanding Credit Scores and Reports

Almost all of your financial decisions revolve around the information that is found in your credit report. Your credit score plays a huge role in your ability to get a loan or even how much you will pay for your insurance policies. It’s important to understand how your credit score is determined and what information makes its way into your credit report. While there are three main credit bureaus, there are many agencies that deal with how your credit is used in making financial decisions for your future.

Your Credit Score

Your credit score is determined by various factors. On-time payments, income-to-debt ratio, and long-term payment history are just a few of the most important factors banks and credit bureaus look at when determining creditworthiness. Ranging from 400 to 800, the higher your credit score, the more likely you are to be approved for loans, more affordable interest rates, and affordable insurance premiums. Late payments, too many open accounts, or no past credit history can cause you to have a lower credit score.

Understanding Your Credit Reports

Credit reports can be quite lengthy and difficult to understand. They contain all of your most important financial information. There will be a list of all of your open accounts, as well as a complete list of closed accounts. Each account will be detailed by balance, number of on-time payments, number of late payments, and how long it took for you to pay the loan off. Accounts that are delinquent will also appear and will detail how many payments were late. Charge-offs will be indicated as well.

Credit Bureaus and How They Work

Credit bureaus collect as much of your financial information as possible and organize it into a detailed report of your credit history and overall risk. Credit bureaus rely on financial institutions, banks, insurance agencies, and many other types of businesses to provide them with information concerning your payment history, creditworthiness (to their standards), and any other financial factors they may use to determine the status of your financial health. By exploring all three credit reports, you can gain a fairly accurate portrayal of your current credit status.

It’s the Law

Federal law states that you are allowed one free credit report from each of the three primary credit reports every year. This allows consumers to see their credit history and go over it thoroughly. They are able to identify and dispute discrepancies they may not have otherwise known about. The information included in credit reports is constantly changing due to payments being made and new lines of credit being opened.

Consumers can receive their free credit reports simply by asking for them or if they have been turned down for a line of credit. To obtain additional credit reports throughout the year, they will have to pay for each one.

Take Advantage of the Knowledge Your Credit Reports and Scores Offer You

Your credit reports and the scores they include offer you a wealth of information about your financial health. It will allow you to identify new lines of credit that have been opened in your name and will notify you when “hard” inquiries are made about your creditworthiness. Hard inquiries are often made by mortgage lenders and business investors. You can take advantage of the information you find on your credit reports to dispute suspicious charges or identify new lines of credit that you didn’t open. Going over your credit report periodically is the best way to prevent identity theft.

Receiving your first free credit score report will give you an opportunity to become familiar with your credit rating and how it is impacting your life. Take a close look and regain control of your financial situation. You have the right to your financial information! Obtain your credit reports and learn as much as you can so you can secure your financial future.