Your Credit Report
One of the best things you can do as a customer is become familiar with your
credit. Below is some information on credit reports and ways to improve your credit
standing.
The Credit Report
Every credit report may appear different, but there are fundamental similarities
to each report you can get from the reporting agencies. Your name, address, date
of birth, social security number, and employment information are used to identify
you throughout all the types of credit inquires. This information is not used in
determining your credit score. This information is only updated by yourself through
lenders when you supply your information.
Most credit reports break down your credit into what are called "Trade Lines".
These are credit accounts that are held in your name, such as credit cards, department
store credit cards, car loans, home mortgages, and so on. Every lender reports on
each account you have with them. They report the type of account , the date you
opened the account, your credit limit or loan amount, the account balance and your
payment history.
When you apply for a loan or credit line, you authorize your lender to ask for a
copy of your credit report. These inquiries into your credit appear on your credit
report in a section by themselves. The inquiries contains a list of everyone who
accessed your credit report within the last two years. The report you see lists
both "voluntary" inquiries by your own requests for credit, and "involuntary"
inquires, such as when lenders order your report so as to make you a pre-approved
credit offer in the mail.
The reporting agencies also collect information from public records. This information
comes from state and county courts, and information on overdue debt from collection
agencies. Public record information includes bankruptcies, foreclosures, suits,
wage attachments, liens and judgments.
Credit Scoring
The most common method of credit rating is the "Credit Score". But you
may be wondering what exactly is a "Credit Score". Credit scoring is a
method of assessing the credit risk of an applicant. It is a mathematical representation
of a person's credit based on past credit history, and current credit obligations.
The three major credit bureaus (Experian, Equifax, and TransUnion) each developed
their own scoring models based on one's credit data. This information is widely
used by lenders and creditors when deciding on an applicants qualification of a
loan, and the rate they may receive. However, your score is not the only factor
that may come under consideration by the lender or creditor. Your salary and employment
history are also important factors in the lending decision.
A credit score is a number that usually ranges from 300-900. The higher the number,
the better your credit is considered to be. Credit scores are typically determined
by the following information:
- Current level of debt, including credit cards, department store credit accounts,
loans, and mortgages.
- Types of credit accounts held.
- Length of credit history
- Number of credit inquiries
- Credit application history
- Negative credit actions, such as bad check writing, late payments, and non-payments.
You may be wondering what is considered a good credit score. Each bureau has their
own scoring system, as mentioned above. However, scoring from the bureaus are roughly
close to each other. A score of 650 or above is typically considered a very good
credit score. A score in this range will typically indicate very good credit standing,
and will increase an applicants chance at receiving a loan with the best interest
rates
Scores between 620-650 are considered good, but may also indicate potential trouble
spots in one's credit that a lender may want to review. This may result in additional
documentation from the applicant to the lender in order to qualify for a loan.
Scores below 620 are considered to be below good credit standing. A score in this
range may result in a lengthy loan process. A score of 620 or below does not mean
that you cannot obtain a loan, but it does indicate to lenders a greater risk of
lending to an individual.
You are entitled to a free credit report from the three major credit reporting agencies
annually. A service established by Fair Credit Reporting Act (FCRA) requires each
of the nationwide consumer reporting companies to provide you with a free copy of
your credit report, at your request, once every 12 months, from www.annualcreditreport.com. The
Federal Trade Commission (FTC), the nation's consumer protection agency, has prepared
a brochure,
Your Access to Free Credit Reports, explaining your rights and how to order
a free annual credit report.
Alternatively, you can request a copy of your credit by contacting the credit reporting
agencies directly:
Several factors on your credit report can determine your qualification for a
loan. Here are some facts about most peoples credit, and how you can avoid common
credit mistakes:
- On average, today's consumer has a total of 11 credit obligations on record at a
credit bureau. These include credit cards (such as department store charge cards,
gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student
loans, etc.). Not included are savings and checking accounts (typically not reported
to a credit bureau). Of these 11 credit obligations, 7 are likely to be credit cards
and 4 are likely to be installment loans.
- On average, today's consumers are paying their bills on time. Fewer than 4 out of
10 have ever been reported as 30 or more days late on a payment. Only 2 out of 10
have ever been 60 or more days overdue on any credit obligation. 85% of all consumers
have never had a loan or account that was 90+ days overdue, and less than 10% have
ever had a loan or account closed by the lender due to default.
- About 48% of credit card holders carry a balance of less than $1,000. About 10%
are far less conservative in their use of credit cards and have total card balances
in excess of $10,000. When we look at the total of all credit obligations combined
(except mortgage loans), 54% of consumers carry less than $5,000 of debt. This includes
all credit cards, lines of credit, and loans-everything but mortgages. Nearly 30%
carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.
- The typical consumer has access to $12,190 on all credit cards combined. More than
half of all people with credit cards are using less than 30% of their total credit
card limit. Just over 1 in 8 are using 80% or more of their credit card limit.
- The average consumer's oldest obligation is 13 years old, indicating that he or
she has been managing credit for some time. In fact, we found that 1 out of 5 consumers
who recently applied for credit, had credit histories of 20 years or longer. Only
1 in 20 consumers had credit histories shorter than 2 years.
- When someone applies for a loan or a new credit card account - in short, any time
one applies for credit and a lender requests a copy of the credit report - this
request is noted as an "inquiry" in the applicant's credit file. The average
consumer has had only one inquiry on his or her accounts within the past year. Fewer
than 7% had four or more inquiries resulting from a search for new credit.