5 Things to Know About Credit Reports

Credit reports are one of the most important financial documents you’ll encounter. They determine your ability to get credit, take out loans, buy a house and even get a job. In the report – among other things – is your credit score.

Your Credit Report Could Hold the Key to Raising Your Score

This three-digit number represents your ability to repay a loan and how financially responsible you are. Simply put, the higher the score, the more likely you are to be approved for a loan, since the lender can trust that you have a good history of making your payments.

Here’s a quick look at how your credit score can impact your ability to get a loan:

What is a credit report?

A credit report is a document that contains information about your credit history. This includes things like the credit accounts you have open, your payment history, and any negative information such as late payments, charge-offs, or bankruptcies. 

Your credit report also includes personal information such as your name, address, and Social Security number.

2. Credit Bureaus Create Credit Reports

Credit reports are created by credit reporting agencies, also known as credit bureaus. There are three main credit bureaus in the United States: Equifax, Experian, and TransUnion. These companies collect information about your credit history from creditors and public records, and then compile it into a report.

There are a few different factors that make up your score, some of which weigh more heavily than others. The FICO credit score is one of the most widely used credit models in the U.S. 

To get a better idea of how your score is calculated, take a look at the chart below:

3. There Is a Relationship Between You and Your Credit Score

Your credit score is a number that represents your creditworthiness. It’s calculated using information from your credit report, and ranges from 300 to 850. 

The higher your credit score, the better your creditworthiness and the more likely you are to be approved for credit.

Your credit score can affect many aspects of your life, including:

• Getting approved for credit: Lenders use your credit score to determine whether or not to approve you for credit. If you have a low credit score, you may not be able to get approved for credit at all.
  
• Interest rates: If you do get approved for credit with a low credit score, you may be charged higher interest rates. This can make borrowing more expensive and increase your debt.
  
• Employment: Some employers check your credit report as part of the hiring process. If you have a poor credit history, it may hurt your chances of getting hired.

4. Checking Your Credit Report is Important 

Monitoring your credit score is an essential part of maintaining your financial health. It’s important to regularly check your credit report to ensure that all of the information is accurate and up-to-date.

One of the main reasons to monitor your credit score is to catch errors or inaccuracies. Mistakes can happen, and even small errors on your credit report can have a negative impact on your credit score.

For example, if a credit card company reports a late payment when you actually made your payment on time, this could result in a lower credit score. Similarly, if a collection account appears on your credit report that doesn’t belong to you, this could also hurt your credit score.

The negative impacts of errors on your credit report can be significant. A lower credit score can result in higher interest rates, which can make it more expensive to borrow money. This can lead to more debt and financial stress. In addition, errors on your credit report can make it more difficult to get approved for credit or loans, or even to rent an apartment.

By monitoring your credit score, you can usually catch errors early and take steps to correct them. This can help you maintain a good credit score and avoid the negative impacts of errors on your credit report. 

5. There Are Ways You Can ImproveYour Credit Score

At some point in time, you may find yourself in need of repairing your credit score. Here are some tips you can use to learn how:

Pay Your Bills on Time

Payment history is the most important factor in your credit score, so it’s essential to make all of your payments on time. Late payments, collections, and charge-offs can all have a negative impact on your credit score.

Keep Your Credit Card Balances Low

The amount of credit you’re using, also known as credit utilization, is another important factor in your credit score. Try to keep your balances below 30% of your credit limit, and pay them off in full each month if possible.

Don’t Close Old Accounts

The length of your credit history is also a factor in your credit score, so it’s best to keep your oldest credit accounts open. Closing old accounts can shorten your credit history and hurt your credit score.

Limit New Credit Applications

Each time you apply for credit, it can have a negative impact on your credit score. Try to limit new credit applications and only apply for credit when you really need it.

Monitor Your Credit Report

As mentioned earlier, monitoring your credit report can help you catch errors or inaccuracies that could be hurting your credit score. Be sure to check your credit report regularly and dispute any errors that you find.

Consider a Secured Credit Card: 

If you’re trying to build or rebuild your credit, a secured credit card can be a good option. These cards require a security deposit and typically have lower credit limits, but can help you establish a positive credit history if used responsibly.

Don’t Go Over Your Credit Limit

Going over your credit limit can result in fees and penalties, and can also hurt your credit score. Be sure to monitor your credit card balances and stay within your credit limit.