Stay on Top of Your Credit Report

There are two parts to how companies monitor your use of credit—your credit report and your credit score. A credit report contains information about you, such as the addresses where you have lived. It includes your alias’s–for example using a middle name or initial or a maiden name. It also includes all of your credit account history such as credit cards, mortgages, car loans, student loans, etc.

The report includes whether you paid these loans on-time, or if you were late or delinquent in your payments. The information includes both open accounts and closed accounts.

The three credit bureaus (Equifax, Transunion and Experian), run, where users can get their free credit reports.

Americans are entitled to one free credit report within a 12-month period from each of the three credit bureaus.

If you receive a copy of your report and find an error you can dispute the error (formally) under the Fair Credit Reporting Act (FCRA.) The credit bureaus have 45 days to investigate and respond to your dispute.

It’s important to Review your credit report for errors. To say that credit reports are error-ridden would be an overstatement. According to the Federal Trade Commission, 79% of credit reports contained at least one mistake and 54% contained identifying information that was misspelled or outdated, belonged to another person, or was otherwise incorrect.

Your credit SCORE is a 3-digit number that represents all the information that is on your credit report. Typically you can get a copy of your credit score from one of the three agencies for around $10, or your bank or credit card company may provide it for free. 

As you can might expect, your credit score is a really important number for your future success, from borrowing money to getting a job. Monitor your credit to check for and report any inaccuracies to the credit bureaus to ensure your credit score reflects your actual credit history.

Know what impacts your score (and what doesn’t.) Being unemployed does not impact your credit score, but missing payments or making late ones will.

Here’s what your credit score includes and what you should focus on when trying to improve your credit score.

Payment history accounts for 35% of your score. The first thing any lender wants to know is whether you’ve paid past credit accounts on time.  This is one of the most important factors in a credit score.

The total amounts owed is 30% of your score. Having credit accounts and owing money on them does not necessarily mean you are a high-risk borrower with a low credit score, but it is a factor in calculating the overall score. Credit scores incorporate a metric called “credit utilization,” which is the ratio of your credit limits to your credit balances Generally, using more than 30% of your available credit will reduce your score. If your limit is $10,000, for example, you need to use less than $3,000 — across all your credit cards, not just one to keep your utilization at 30%.

In general, a longer credit history will increase your credit score. Length of credit history is 15%. However, even people who haven’t been using credit for a long time may have a high credit score, depending on how the rest of the credit report looks.

Length of history includes how long your credit accounts have been established; the age of your oldest account; the age of your newest account; an average age of all your accounts; and how long it has been since you used certain accounts.

The score will consider your mix of credit cards, retail accounts, installment loans, finance company accounts and mortgage loans, which is 10% of the score.

New credit is 10%. Research shows that opening several credit accounts in a short period of time represents a greater risk—especially for people who don’t have a long credit history. 

Some credit rating agencies have programs to help you boost your score by taking into account payments not typically included on a credit report. Experian Boost, for example, is a free program you can opt into that allows you to get credit for making on time payments on your utility or phone bills. While anyone can opt in and benefit from their on-time payments, people with limited credit history will see the most improvement.

Here’s an example of how your credit score is being used to determine your interest rates for a used car loans.

Let’s say you are borrowing $18,000 for a used car. With a high credit score, your interest rate may be 3.4%. With a low credit score, your interest rate may go as high as 15%. In dollars that means the higher interest rate increases the total cost of the car loan by over $7,000. That low credit score made a direct hit on your wallet!

The increased cost is what happens with car loans, and it also applies to rent; mortgages; credit cards; utility (water, electric, cable) deposits and any other financial transaction you may enter.

Our advice to you is to use a spending plan, spend less than you make and pay off your debt as quickly as possible. Doing these simple things, along with keeping track of your credit report and your credit score will improve your financial situation in multiple ways.

Sirach 20:12 tells us, “A man may buy much for little, but pay for it seven times over.”  Paying for things once is expensive enough. Avoid any potential for paying seven times over.

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