Credit reports get a lot of attention these days.
Here are the answers to some common questions about credit reports.
1. What is a credit report?
A credit report is a detailed report about your credit history.
Credit reports are compiled by credit bureaus. There are three main credit bureaus or credit reporting agencies:
2. What information is on my credit report?
Your credit report will contain personal information like your name and any names you have used in the past to obtain credit, maybe even nicknames, as well as your current and past addresses. Your birthdate, Social Security number, and your phone number will all be listed.
Your credit report will also contain a list of your credit history.
This includes all your current credit accounts, including:
- the type of account
- The credit limit on each account
- The balance of each account
- Your payment history
- The name of the creditor
- The date the account was opened
- The date the account was closed
Your report may also contain information about past accounts and any accounts that were sent to collections agencies.
Some public information is also reported, such as:
- Civil suits and judgments
- Reports on unpaid child support
Keep in mind that most information stays on your credit report for seven years. Even if you paid something off or closed an account, the information will stay there for seven years.
3. What is a pull?
A pull, or inquiry, is when someone looks at your credit report.
There are two kinds of inquiries: hard and soft.
A hard pull or inquiry is done when you are trying to get more credit. For instance, applying for a mortgage, car loan, or credit card. These types of inquiries are shown on a credit report. A hard inquiry can actually lower your credit score a few points and will stay on your report for about two years. This is usually not a big deal but can have a big effect on your credit score if you apply for multiple loans in a short amount of time.
Soft pulls or inquiries will still give someone access, but they don’t show up on your credit report and won’t have any effect on your score. Some common times for soft inquiries are:
- For background checks for employment
- “Pre-qualification” from credit card or insurance companies
- When you check your own credit score
Many companies use a third party such as Soft Pull Solutions to check out your credit report for verification or for lending.
4. What is a credit score and how is it determined?
A credit score is a number between 360 and 850 that tells creditors how likely you are to repay your debts. The higher the number, the more likely you are to pay.
A score of 700 or more is considered good and a score of 800 or more is considered excellent. Most people’s credit scores are somewhere between 600 and 750.
Credit scores are determined by five factors:
- The most important factor, making up 35% of your credit score, is your payment history. This evaluates whether your payments are made on time or if they are late or even skipped.
- The second factor, at 30%, is how much you owe. How many loans or credit card accounts do you have and what are their balances?
- Thirdly, is your credit utilization. What percentage of your available credit are you currently using? To positively affect your score, this should not be more than 30%.
- Another is the length of your credit history. The more history, the better. Especially if it shows you consistently paying on time. But this is not as important as it only makes up 15% of your score. The type of credit you have accounts for 10% of your score.
- Creditors are also looking to see if you have a variety of accounts or just a whole bunch of credit cards. The last 10% is made up of new credit inquiries. If you are applying for a lot of new credit close together, you may be labeled a risky borrower. It might suggest you need money or that you are in a lot of debt.
5. How does my score affect me?
Most significantly your credit score will affect your ability to get more credit. A low score may keep you from getting any loan at all or it may just give you an increased interest rate, which will give you a higher payment.
Depending on your field, employers may also look at credit reports to gauge prospective employees trustworthiness.
6. Why should I check my credit score?
You should check your credit score often. Knowing your score can help you manage your finances, rebuild a bad score or keep the information accurate. It is also the first way to find out if you are a victim of identity theft.
7. How can I improve my credit score?
The easiest way to improve your credit score is to make your payments on time. Payment history makes up the biggest portion of your score and can go a long way to improving it. Pay off your debt. The second biggest category is the amount of debt you have.
Getting your debt utilization percentage under 30 will help a lot. Pay all your bills on time. Utility bills, taxes, and medical bills can all go on your credit report if they are late or unpaid. Consider leaving an account open that is paid off, it will improve your utilization ratio.
Having no credit at all can also be a bad thing. Start building credit by opening a credit card account and using it to pay one bill. Then just pay it off each month.
Credit reports contain a lot of important information and can be overwhelming. Take small steps now to monitor and improve your credit.