A lot of us have had the question come up, “What’s your credit score?”. Well what exactly is a credit report anyway? A credit report is a detailed record of individual credit history prepared by a credit bureau that includes information about you including your identity, your name, address, date of birth, social security number, and probably your employment information. It also gives information about court judgment against you, it indicates any bankruptcy filed for you or by you and any tax lien against you. It gives well-detailed information about your outstanding debt, such as a mortgage, student loan, car loans. One item it also show are credit inquiries which is a list of individuals and companies that requested a copy of your credit report.
But why is a credit report that important anyway?
Generally speaking your mortgage lenders, insurers, banks, and sometimes employers obtain your credit report to know how you meet your financial responsibilities. For instance, your lender uses your history to determine whether you are qualified for a mortgage or not, and your lender can as well use the account to assess your loan pricing and know if you’ll be able to meet your mortgage fee.
With the credit report, credit bureaus gather and keep your credit information that is in your report. There are three credit bureaus that we look at – Experian, TransUnion, and Equifax. These credit bureaus provide your credit information as a report and credit bureaus also get your credit information from your creditors such as credit card issuer, lender, and bank. Public records are another source where credit bureaus gather their information about court and property record.
Most people also do not realize that you are entitled to a free credit report every year from each of the credit bureaus like Experian, Equifax, and TransUnion. You can do this by contacting (877)322-8228 or by visiting the website www.annualcreditreport.com. By using either of these methods, you will be requested to give certain information to access the report. A credit report generated from one of the bureaus may not adequate; hence, you may need to apply for your credit from the three bureaus at a time.
With the actual credit scores themselves, the rating companies grades for your credit report helps your lender to predict how likely you are to repay your loan and make payment at due time. The lender uses your credit score to determine whether to grant you and the rate you will pay the mortgage. The score is calculated by the total amount of your outstanding debt, whether you settle your bills on time, whether there is any collection action against you, the type and number of the account you operate (mortgage, student loans, credit cards) and your account age.
What can change my credit score?
Your credit score is calculated based on your credit report. A change to your credit report will bring change to your credit score. For example, if you pay less on your outstanding debt or pay your utility bills late, your credit score goes down. However, if you settle your utility bills on time, and make a sizeable down payment on your mortgage, pay your outstanding debt or correct errors on your credit report, your credit score will increase.
How can I build a good credit score?
When building your credit score, you should consider the following
Establish a credit report
For you to create a good credit report, you must have an active credit account. Go to your bank or credit union to get your first credit account or activate your account.
Adhere strictly to the presented payment terms and conditions
Make sure you make a minimum payment due on time. A payment that does not meet up to the minimum contractual amount could harm your credit report or credit score.
Keep your balances low
Keeping a low balance as compared to your available loan limit gives proper finance management. It shows clearly enough that you are financially responsible and shows your lender that you are likely to repay the loan. A key component to credit score is your utilization rate that is your balance to limit ratio.
Apply for credit wisely
Do not apply for multiple credits in a short time and be sure to be truthful with applying.
Show good credit habits over a long period.
Demonstrate a good credit management habit over a long period to help achieve a good credit score by paying your credit cards regularly.
Why is proper credit management critical?
Having good credit plays a crucial role in your financial life. It does not only makes you qualify for a loan or credit but can also secure you a job. Proper credit management will make you eligible for lower interest rates and fees. It can also increase your savings, which can be set aside to meet emergencies and smaller unexpected expenses.
Getting yourself a good credit score is not hard. Follow the five principles on which you can build your credit score discussed in this blog. Try as much as possible based on your capacity to reduce your credit applications over a short period. Getting a good credit report does not only assist your lender in deciding whether to grant you a loan or not but can also increase the possibility of you securing employment.