Reading and Understanding Your Credit Report
The credit report holds important information about your financial history, your ability to pay bills and your overall solvency. Most of the focus is centered on the score. However, there are several criteria that make up your credit score which you should understand.
Credit Card Use
The credit card companies total the amount of money you have available to spend, i.e. the amount of money spent if you were to max out all of your available credit. They then total the amount you owe.
For example, let’s say your total credit (Visa balance, credit limits on department store cards and gas cards) is $10,000.
You owe a total of $8,000 on all of those cards combined. Your score for credit card use will be high in that you have almost maxed out your cards.
Credit companies look for a minimum of 30% unused credit. Therefore, if you have a high percent on your credit card use; you will want to pay off an amount to get your balance due down to within that 30% range.
Tip: Check out your open accounts. Make sure the information is accurate. If you are showing accounts that have been paid off, you will want to contact the credit company to correct the error.
Just like it sounds, this is your history of payments. Accounts that have been paid late are categorized into 30 days, 60 days and over 90 days late. This information stays on your account for several years. Therefore, your focus is to pay bills, even if it is just the minimum amount, on time each month.
The credit companies look for a higher than 98% on time payment history. For example, just three payments made 45 days late back in 2014 can negatively impact your credit report today.
Tip: As always, check to make sure the information is correct. If there is an error you can file a dispute with the credit bureau.
Okay, this is the ugly one. If you have derogatory marks on your account, they can haunt you for as long as TEN years.
A classic example of a derogatory mark is if you have had a lien placed on your property because of non-payment. The IRS is known for using this tactic if you are behind in your taxes and have failed to make any payment arrangements. You can challenge the accuracy of a statement and the credit reporting agencies will have to report your version of the story.
Tip: Even after you have paid off these amounts, the derogatory marks remain on your account and this is one of the things that has the highest negative impact on your overall credit score.
The next three areas of focus on your credit report are important but have a lesser degree of import on your overall score.
How long have you had credit accounts open? Car loans, property loans, credit cards, etc. the age of your accounts shows your ability to manage credit. This simply comes with time.
Tip: For those just starting out establishing credit, opening an account and keeping it in good standing will go a long way towards providing a positive credit age and credit history.
This measurement is important in that you want to show a variety of types of credit without showing an overabundance of open accounts. Having a car loan, a Visa and a department store card that you are using and paying off regularly shows lenders that you are responsible without going overboard.
Tip: Always check to make sure the information is correct. Are the number of accounts, both open and closed, that show on your credit report, accurate? If not, make sure that you contact the credit bureau to update your information.
A hard inquiry happens when you apply for credit and are turned down. Those credit card solicitations that come in the mail or the pop-up offers that show up on your computer are not always the best avenue to pursue. Each time you are refused for a credit card that negatively impacts your credit score.
Being turned down for a credit card can stay on your report for up to two years.
Tip: If you want to apply for a card, check the likelihood that you will be approved before applying. For example, Credit Karma offers an Approval Odds service that provides a percentage of the likelihood you will be approved.
Keep in mind that sites like Credit Karma will provide your score and a summary overview of your credit report. To review a detailed accounting of your credit history, you will need to contact the individual credit companies.
You can visit AnnualCreditReport.com to request a free copy of your credit history.
The professionals at Bankruptcy Advocates are here to help you decipher your credit history. If your report contains inaccurate information, we can help you protest those misstatements with a view to getting them removed. Your initial consultation is free. Give us a call to learn how we can help.