Thursday, July 6, 2017

An Easy Guide to Understanding Your Credit Report

Credit is a major driving force in today’s economy, giving people the purchasing power that they need to buy a home, start a family, and build a career. 

Landlords, employers, utility companies and more use credit reports when deciding whether an individual is responsible and reliable. A good credit score can open the door to better deals and lower interest rates, but unfortunately, many of us have a less than perfect credit score.

This July, around 12 million people can expect to see a slight bump in credit scores as credit reporting agencies nationwide wipe tax liens and civil judgments from their records. 

However, much of those affected should only expect to experience an improvement of 20 points or less. If you’re looking to improve your credit even further, it’s important first to understand the basics of how credit reporting works.

Finding and Checking Your Credit Report

Keeping an eye on your credit report can help you to stay on top of your finances and improve your overall fiscal health. An unusual credit report can also give you an early indication of fraud or theft, allowing you to nip the problem in the bud. 

Ideally, you should check your credit report on a monthly basis to ensure that all of the information is up-to-date and accurate. A mistake in your report could adversely affect your overall score. You may have to pay a small fee to check your report, or you may be able to access your credit scores for free through your bank.

What the Numbers Mean

FICO scores created by the Fair Isaac Corporation, are one of the most popular measures used by banks and lenders to assess the risk of doing business with a particular person. 

Lenders may also check your VantageScore, which is a measure developed by three major credit bureaus, including Equifax, Experian, or Transunion. Scores are influenced by a number of factors, including:
  • Late payments
  • Credit utilization rate, or the amount of credit you use versus how much credit you have available
  • Number and age of credit accounts
  • The types of credit you use

If you keep your account active and pay back your debts on time and in full, you can build up your credit score and enjoy access to lower rates on insurance plans, business loans, mortgages, and more. Credit scores can range anywhere between 0 and 850, with higher scores indicating fiscal responsibility.

Excellent Credit: 720 to 850

Consistently responsible borrowers with a score in this range can get some of the best interest rates when making a purchase. Most lenders require a FICO credit score of over 740 for a low interest rate on a mortgage.

Good Credit: 690 to 720

When most, but not all payments are made on time, a borrower is considered to be fairly reliable. People with credit scores in this range tend to get decent interest rates from banks and lenders.

Problematic Credit: 650 to 690

Credit that dips below 700 begins to raise a red flag for any agency checking a credit report. Borrowers may be denied future credit if they have a history of making late or short payments.

Poor Credit: 350 to 650

A poor score can be the result of anything from bad spending habits to bankruptcy. Lenders will often deny credit to anyone with a score in this range.

No Credit: 0 to 349

People who have no credit history will have a score of zero. Opening a credit account allows individuals to start building their credit up so that in the future, they can make large purchases such as a house or car.

Improving Your Score

If your score is in the low range, over time, you can work to build your credit up again. It’s a good idea to start the process as soon as possible since you never know when you might have to borrow money, move apartments, or switch insurance plans.

How to Improve Your Credit Utilization Rate

Your credit rate indicates how much you’re spending compared to how much credit you have available. Lenders look for a low ratio, meaning that borrowers use less than the amount available to them. By paying off your debts and reducing your spending patterns, you can improve your credit utilization rate, and thus your score.

How to Get a Late Payment Removed from Your Credit Report

If you have a good history with your creditor, then you may be wondering how to get a late payment removed from your credit report. In some cases, it might be as simple as calling them up and requesting that a late payment gets removed as an act of goodwill. 

You may also be able to get it removed by agreeing to set up an automatic payment schedule in the future. If a creditor refuses to remove a late payment, you may be able to dispute the issue or hire the help of a professional credit repair agency.

Many people focus too heavily on the past when it comes to matters related to credit. While it’s true that you can’t change any historic mistakes (such as late payments) that you’ve had problems with, there’s a lot you can do to improve your credit score in the future. 

Knowledge is key, so begin by finding out your current score and then work on the ways described here to start improving your rating bit by bit.

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