Credit Report Tips - Information and Advice
"What to look for in your credit report and
how to fix it."
This article explains what to look for when you order a copy of your credit
report and how to understand it.
One of the ways that the Internet is helping consumers is by making it easy to
order a copy of your credit report. This can be useful information when you are
getting ready to apply for a mortgage loan, or just to give you a general idea
about where you stand from a credit perspective. Click here for a
free credit report.
What You Will See on Your Credit Report
The major credit repositories collect three types of information. What you see
will include whatever applies to you in all three areas:
- Public records
- Trade lines
- Credit Inquiries
1. Public Record Data
This is usually stuff that's not good. The term "public record" means
information recorded by government authorities, including courts. So, if you
have declared bankruptcy, or have a tax lien on property that you own, or there
is some other financial matter in which a court or government agency has
recorded an action against you, this will show up in the search of public
records.
Bankruptcy filings stay on your report for 10 years. Other tax, court and
payment delinquencies stay on for seven years.
If you have adverse public record information, this does not preclude you
from getting a loan, but it does make it difficult to be rated as an "A"
borrower (a term often used to describe people whose credit is viewed as low
risk by lenders).
Once the issue has been resolved, and after a few years of good credit
history, you often can restore a low-risk credit rating. Meanwhile, you probably
will have to write a letter to any potential lender to explain the situation
(lenders call these "cry letters").
2. Trade lines
A trade line is a status report on an existing account where you have credit,
such as a store charge card or major credit card. The lenders with whom you have
these accounts voluntarily supply the status information to the major
repositories of credit information.
A trade line covers an account that you now have that gives you either
installment credit (a fixed loan that you pay off in regular installments ) or
revolving credit (a loan whose amount can vary depending on purchases, such as a
major credit card or department store credit card). The credit report will show
whether you are current or behind payments on the account, and it will show how
often you have fallen behind within the recent past (usually one year to three
years).
If the trade line section shows only one or two missed payments, and no current
delinquencies, you are fine. If it shows you as being currently delinquent, you
should remedy the situation before you apply for new credit, such as a mortgage
loan.
3. Credit Inquiries
This shows recent inquiries made to the credit reporting company by companies
from which you have requested a credit card or some other form of credit.
What You Won't See
What you will not see is your overall credit rating. There are companies that
are separate from the credit repositories but that work closely with them to
produce overall credit ratings for individuals, called credit scores. Credit
scores are used increasingly by mortgage lenders to make decisions.
Fair Isaac is the main credit scoring company. For a long time, it resisted
allowing consumers to see their own scores. Under pressure from consumer
advocates and others, however, the company appears willing to change, and has
recently posted on its Web site the criteria it uses to evaluate consumers'
credit.
Credit score guidelines:
1. Public record data less than 5 years old can have a severe impact on your
credit score.
2. Credit accounts that currently are delinquent can have a major adverse impact
on your credit score.
3. A track record of "serious delinquencies" (90 days or more) can have a major
adverse impact on your credit score.
4. A high "utilization rate" (your current credit balances use up most of your
available credit) can have an adverse impact on your credit score.
5. A large number of recent inquiries (indicating that perhaps you are
aggressively seeking credit) can have a modest adverse impact on your credit
score.
What to do with your Credit Report
1. Review the report for accuracy. Be particularly careful to check your
personal identification information. If the report uses a misspelled name,
address, or Social Security number, this is important to get straightened out.
2. See if there are issues in the report that could create problems in your
credit rating.
3. Try to resolve the issues that you can--for example, by paying off any
accounts that are delinquent, or reducing your utilization rate.
If the report has inaccuracies, you may wish to contact all three major credit
repositories to clear up the issues as quickly as possible.
What not to do
• Do not pay a credit doctor to "fix" your credit report--those services are
scams. But do examine your report carefully for errors, because correcting
errors can prevent major problems.
• Be careful about signing up for a service to "monitor" your credit report.
These services are fairly expensive, and often they use a free copy of your
credit report as a loss leader. I would never pay the $50 a year or more that
these services charge.
• Try to avoid overpaying for a credit report. The standard prices I have seen
are about $10 or less for a report from one credit repository, and about $30 for
a report from all three. If you have no reason to suspect that there are errors
in your credit report, it would be better to buy the $10 report that comes from
one repository. If that report turns out to require corrections, then you can go
back and order a three-repository report.
Related Pages
Credit History
and Mortgage Approval - Your credit history affects your mortgage
approval chances - Get a free credit report with credit score and qualify for a
lower mortgage loan rate.
FICO Score Explained
- Information on your FICO score, an explanation of the factors your score is
based upon, plus details on improving your FICO scores and home buying credit
rating.
Credit Score
Improvement - Credit scores myths and facts - How to improve your
credit score - Get a free credit report with free credit score and improve your
numbers.
FICO
Scores Mortgage Information - How your FICO scores affect your loan
rate - How to check your credit score yourself before applying for a mortgage.
Credit Report Guide
- Information and advice - Credit Report Guide - Resource links and tips about
examining your credit report for errors and omissions.
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