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Understanding Your Credit
Report
Check Out The "Credit Secrets
Bible"
Recent
studies have shown that the majority of Americans - ninety
percent - have at least one credit card. That's one
problem, but the other is that they are using that card – A
LOT!
The
average family carries a credit card balance of between $7,000
and $10,000. Over $1,000 per family goes on interest
repayments every year, and that’s just the average – some
people owe much more!
In
total, Americans spend over $1 trillion every year on their
credit cards, and owe more than $500 billion of it as debt. If debt
continues at the current rate, one family in a hundred will be
forced into bankruptcy. Over 90% of Americans’ disposable incomes
are spent on debt repayment.
When
you add credit card debt to our regular monthly bills,
we are living at a level of debt which would tax
anyone’s budget. As a result, some bills go unpaid and others
are paid late.
Both
of these scenarios can damage your credit, sometimes so much so
that you think there’s no way you’ll ever be able to get out of
debt. It also makes the dream of being able to obtain credit for a
high ticket purchase, say a house or car, decidedly out of
reach.
The
truth is that you can get out of debt and repair your credit
to almost the level that it was before you had credit
problems. It takes some time and a little work on your part,
but it IS possible.
Loan
approvals and other such borrowing depend on your credit
score. That number is what determines if you can get credit,
what your interest rate will be, and how much money potential
lenders will advance to you. A good median score is
750, but the higher your score is, the more financially sound you
are.
While
it’s always a good idea to try and stay away from credit, not
everyone has a hundred thousand dollars lying around to buy a home
or twenty thousand to buy a car. Heck, for some people,
scraping together five thousand dollars for a good used car is
difficult. That’s why we need credit. So we can buy
higher ticket items on a kind of a "drip feed" system, rather than
having to come up with huge amounts of cash.
Where
the trouble arises is when people begin to buy everyday items such
as groceries and clothing on credit cards. Then those bills
begin to get bigger and bigger until pretty soon, they’re paying the
minimum amount due which will take forever to pay off. Plus, a
lot of people just continue charging things even when they have a
large balance on their account.
Your
credit score defines who you are to businesses and you want your
score to be as high as it can be. It doesn’t matter how
bad your credit is now. There are ways that you
can improve your credit score no matter how low it is
now. Don’t despair; just get started – right away!
Check
Out The "Credit Secrets Bible"
The very first step you need to
take when trying to raise your credit score is to find out what your
score is and what it means. Legislation called the FACT Act
was passed that allows all Americans to get one free copy of their
credit report every year. This report lists all of the
debts you have had and your payment history related to those
debts.
It will tell you where you owe
money, how much you owe, and how you pay (on time, 30 days late,
etc.). All of that information is compiled together and then
analyzed.
After the analysis, a
number is assigned to you as to what your credit fitness level
is. Potential creditors then look at your credit score and
decide if you are "a good risk", or in other words, whether you
are going to be able to pay back the amount of money you are
requesting to borrow.
That’s the short
version. Actually, there is a lot more
involved in determining your credit score. However, what
should be important to you is that you know how to read your
credit report and how to raise that score so that you are able to
get the things you need. Remember that – the things you NEED,
not the things you WANT!
Let’s start with how to
get your credit report in the first place. There are three
major credit reporting agencies that will offer you the one free
credit report you get each year. They are Experian,
TransUnion, and Equifax. You can contact each of them directly
as follows:
-
Equifax
– You can find them at www.equifax.com online.
You can also order your free credit report by mail. However,
they only offer this option for free to residents in the states of
Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and
Vermont. All other states require you to pay a $10
fee.
If you do want to do
this by mail, send your request to:
Equifax Information
Services, LLC
Disclosure
Department
P.O. Box
740241
Atlanta, GA
30374.
You can also call
them at 1-800-685-1111.
There are also
a number of websites who will also allow you to download your
free credit report from their websites, but they ultimately will
just be forwarding you to one of the above websites anyway.
However, they are worth checking out for the information that you
can find on them. Here are a few:
The main thing is that
you will want to get your free credit report in order to find out
where you stand and how far you have to go to repair your
credit. Most of the time when you download your credit report,
you will be able to view and save it instantly. Save it to
your “My Documents” file if you can. That way you’ll be able
to print it out and refer to it as often as you wish.
Also, some of these sites offer
low-cost memberships that will alert you if a new item comes onto
your credit report. Their services will offer many different
things, but purchasing a membership is strictly voluntary and
probably not necessary if you want the honest truth.
Once you get a copy of
your credit report, it’s important to know how to read it. There are
going to be an awful lot of numbers, abbreviations and terms you've
never seen before. Trade lines, charge-offs, account review
inquiries -- how do you read this thing?
Even though you get one
free credit report each year, experts suggest that if you are
serious about improving your credit score, you need to examine a
report from each of the three major credit reporting agencies.
This will, however cost you a small fee from the other two, so keep
that in mind.
Why do we suggest
you have all three? Creditors can pick and choose which credit
reporting agency they want to report to. Some will report to
all three, but many won’t. You may find that what is included
on one report isn’t on another. The reports will have
different information because it's a voluntary system, and creditors
subscribe to whichever agency they want -- if any at all.
A credit report is
basically divided into four sections: identifying information,
credit history, public records and inquiries.
Identifying information
is just that -- information that identifies you. Look at it
closely to make sure it's accurate. It's not unusual for there to be
two or three spellings of your name or more than one Social Security
number. That's usually because someone reported the information that
way. The variations will stay on your credit report. If it's
reported wrong, leave it because it might mess up the link. Don't be
concerned about variations; in the bigger scheme of things it's not
too important.
Other information in
this section might include your current and previous addresses, your
date of birth, telephone numbers, driver's license numbers, your
employer and your spouse's name. The data in this section is
often used to verify your identity or to confirm that the
information you provided for an application is accurate. Small
variations in this data between the three bureaus are normal as each
agency may have their own recording procedures.
The personal information
section of your credit report may also include a "consumer
statement." This is a statement that you asked the credit reporting
agencies to add to your report. Commonly, this statement is used to
explain a record on your report.
For example, "The Smith
Bank account from 2004 was a shared account with my ex-husband."
This statement does not impact your credit score but may
help to clarify a situation to a potential creditor or lender
and improve your chances to obtain credit.
The next section is your
credit history. Sometimes, the individual accounts are called trade
lines. Each account will include the name of the creditor and
the account number, which may be scrambled for security purposes.
You may have more than
one account from a creditor. Many creditors have more than one kind
of account, or if you move, they may transfer your account to a new
location and assign a new number. The entry will also
include:
-
When you opened the
account
-
The kind of credit (installment,
such as a mortgage or car loan, or revolving, such as a department
store credit card)
-
Whether the account is in your
name alone or held jointly with another person
-
Total amount of the loan, high
credit limit or highest balance on the card
-
How much you still owe
-
Fixed monthly payments or minimum
monthly amount
-
Status of the account (open,
inactive, closed, paid, etc.)
-
How well you've paid the
account
On Experian's report,
your payment history is written in plain English -- never pays late,
typically pays 30 days late, etc. Other comments might include
internal collection and charged off or default. Charged off
means the creditor has given up trying to recover the debt.
Basically, the company has made efforts to collect the debt,
realized that it’s not going to be paid, and eventually written
it off.
Other reports use
payment codes ranging from 1 to 9; an R1 or I1 on a report is an
indication of a good payment history on a revolving or installment
account. Often, the code key will be listed on the report so
you can better understand what the codes mean, but they may
not.
Credit accounts are
divided into five categories: real estate, installment,
revolving, collection and other. Here is a better description
of each category:
Real
Estate: First and second mortgage
loans on your home.
Installment: Accounts
comprised of fixed terms with regular payments, such as a car
loan.
Revolving: Accounts with
opened terms with varying payments, such as a credit card
account.
Collection: Accounts
seriously past due that have been assigned to an attorney or
collection agency.
Other: Accounts where
the exact category is unknown. This could include 30-day accounts,
such as an American Express card.
Your credit report lists
a summary of the details and terms for each account. This summary
includes information about the account number, condition, balance,
type and pay status for each account. The summary for collection
records is slightly different.
The following
information is for real estate, installment, revolving and other
type records:
A portion of the number
is hidden for security reasons. A partial account number is
all that is required in order to file a dispute about the
record.
For each account, the
report also displays an illustrated payment history over the last 24
months. There will be a key at the top of this section describes
each payment history symbol and what it indicates for your account.
Green boxes marked "OK" show that your payment was made on
time.
Most credit reports also
give you more in-depth information about specific accounts.
This is also an important part of the credit report you’ll want to
review to ensure accuracy.
The following
information may be reported for your account in this
section:
-
Reported: The last date
when any activity for this account was shown. Activities include
payments, credit card billings and changes in your terms. Very
recent activity may not yet show on your account, since it takes
time for it to appear in the credit reporting agency's
system.
Collection accounts are
accounts that are seriously past due and have been transferred to an
attorney, collection agency or a creditor's internal collection
agency. As your debt is transferred between different agencies, you
may see several records on your report for the same debt.
Only one record should
be marked as open at a time. All the collection records and the
original debt record will expire from your credit report at the same
time. Collection records use a unique summary format on your credit
report:
-
Original
Creditor: The name of the original
creditor where you accumulated your debt. This could be an account
that is listed on your credit report (such as a credit card) or an
account that is not listed on your report (such as a library,
video rental or cell phone company). If this creditor was a
medical office, the name may be kept anonymous to
protect your privacy.
The next section is the
part you will want to remain absolutely blank; this is the public
records section. If you have a public record listed, it means
that you've had a problem that has required litigation. It
doesn't list arrests and criminal activities; just financial-related
data, such as bankruptcies, judgments and tax liens. Those are
the nightmarish challenges that will wipe
out your credit faster than anything else.
Here are definitions of
the eight types of public records you could see listed on your
credit report:
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The summary information
listed for each of these types of public records can vary. Here are
some definitions of common record categories:
If the public record is
a bankruptcy, three other fields will be visible.
The final
section pertains to inquiries. This will be a list of
everyone who has asked to see your credit report. Any time anyone
gets into the report, it will post an inquiry. That means
if you try to apply for a credit card, it will be listed as an
inquiry. Have you been shopping for a car? Every time a
dealership runs a credit report, it shows. If you call the
credit bureau and ask for a copy, it will be on there. It's a very
detailed entry record. Generally, this is good news for
the consumer.
Inquiries are divided
into two sections. "Hard" inquiries are ones you initiate by filling
out a credit application. "Soft" inquiries are from companies that
want to send out promotional information to a pre-qualified group,
or current creditors who are monitoring your account.
You may have heard that
a large number of inquiries can have a negative impact on your
credit score, but you probably don't have anything to worry about.
The vast majority of inquiries are ignored by the FICO scoring
models.
For instance, the model has a
buffer period that ignores inquiries within 30 days of getting a
mortgage or a car loan. It also counts two or more "hard" inquiries
in the same 14-day period as just one inquiry. You could have
30 in two weeks and it will only count as one.
However, on the other
hand, having a lot of credit inquiries on your account could also
show potential creditors that you are trying to live your life on
credit which means you might not have the means to pay back the
debt. This is especially true if you’ve been applying for a
lot of credit cards.
Of course, you know
about all of the offers that come in the mail. They usually
read “You’ve Been Approved!” as an enticement for filling out the
application. This is not always true with pre-approval offers,
so proceed with caution. They generally end up in my
shredder.
Another time that you will be asked
to apply for credit occurs in public places and the companies are
offering products for free in exchange for a credit
application.
Watch out, too, when you are
shopping at your favorite department stores. They also have
store credit cards and may offer you a percentage off your purchase
in exchange for a credit application. In general, this is not
a bad idea – which we will talk about a little later in rebuilding
your credit – because store credit cards are great when helping
rebuilding your credit.
The bottom line is that
if you don’t need another credit card, don’t apply for one.
It’s always good to have one on hand for emergencies, but having
five or six can just be a temptation to spend more than you can
comfortably repay.
There may also be a
section on your credit report that lists creditor information.
The creditor contact section lists the name and contact information
for each creditor that appears on your credit report. This can also
include the contact information for creditors that have made
inquiries.
Each creditor's address
is listed to the right of the creditor's name. When available, a
phone number is listed for the creditor. Creditors who do not
list their telephone number should be contacted by
mail.
So that’s the first step
– retrieving your credit report and going over it with a
magnifying glass. But where do you find that magic number
– your credit score?
Check Out The "Credit Secrets Bible"
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