Raise Your Credit Score
Having access to credit can be important, especially at key times in your life like buying a home, and paying for your student loan. Credit for more frivolous needs is perhaps not to be recommended, as debt can prove a heavy burden, from both a time-consuming and emotional perspective.
If you are thinking of taking on a loan in the near to medium future, it is worthwhile to know the basics about credit reports and credit scores. When you apply for a loan, the lender, as part of the approval procedure will contact one of the three main credit report agencies (TransUnion, Experian and Equifax) to obtain your credit report and credit score. Depending on the contents of your report, and the score you achieve the lender will decide upon i) whether to offer you a loan at all, and ii) and what interest rate to offer the loan. So the bottom line is that a clean report, and high credit score can grant you access to for example a mortgage at savings of many thousands of dollars over the lifetime of the loan due to the relatively low interest rate you will be charged.
The three bureaus, Equifax, Experian and TransUnion provide slightly different formats of report, but the basic information is the same (though it may differ from one bureau to another, as they all keep their own sets of data).
A Credit Report typically has this format, and includes the following basic information:
| Personal Information | ||||
| Name | DOB | Social Security Number | Address | Employer |
| Steve Paseti | 11/15/1981 | 333-44-5555 | 17 Center Road, Larkspur, CA, 93939 | Marin Boats |
| Credit Accounts Summary | ||||
| Lender | Account Number | Account Type | Balance | Negative Payment History |
| DG Financing | B13203 | Installments | $22551 | None |
| CMG Autos | 1732832 | Revolving | $551 | 11/30/2007 Paid 41 days late |
| Previous Requests For Report | ||||
| Date | Company Requesting Report | Voluntary/Involuntary | ||
| 07/08/2008 | CL Financing | Voluntary | ||
| 07/18/2008 | CT Bank | Voluntary | ||
| Credit Score | ||||
| 650 | ||||
Other information such as bankruptcies, tax liens, court judgements etc is also included.
The credit score attached to your credit report is more often than not your FICO score. This is calculated by the credit bureau using a computer system from the company Fair Isaac. But note that each bureau will use their own data to work out your credit score, so your score may differ from one bureau to the next. FICO scores have a 300 to 850 range with 750 to 800 being the most common score (a ‘good’ rating).
Obtaining the contents of your credit report (without the score) is straight-forward, and is certainly recommended if you are considering applying for a loan in the near or medium term. Each calendar year you can obtain one (free) copy of your credit report from each of the credit bureaus, see annualcreditreport.com. Finding out your actual FICO scores costs a small amount, you can do this at myfico.com.
On receiving your credit report, the first thing you should do is check for any errors. If you find any contact the company concerned; they have a statutory obligation to correct any errors. Secondly look at the Negative Items. Now you’ll realise the effects that missing payments has – a blemish on your credit record. Make sure that in the future you pay your bills on time. Also take careful note of the ‘Previous Requests’ section. Too many enquiries (caused often by shopping around for the best interest rate when looking for a loan) can have a negative effect on the terms offered by a lender.
Improving your credit score is a simple matter of managing your credit more efficiently and in a timely fashion. The FICO site action includes:
Apply for and open new credit accounts only as needed
Have credit cards but manage them responsibly
Note that closing an account doesn’t make it go away.
Lastly it’s interesting to notice that having no entries in the ‘Credit Accounts Summary’ section can actually damage your credit score, since you have not established a history of being a reliable payer. So having a credit card, and using it sensibly can help with your score.
Best Finance’s (from 100BestEverything) ratings for Credit Reports: Financial Management: 4 stars out of 5
