Credit Report and Credit Score - Understanding Information on Your Credit Report
Written by: Kristy Welsh
Understand Information on Your Credit Report
Credit report and credit score information is very important these days. With the tightening of the economy and more restrictions on lending procedures, a bad credit can make life very difficult. If you have a low credit score, it is time to repair your credit and we can show you how. You start by getting your free credit report - you are entitled to one online report a year from Equifax, Experian and TransUnion - the three main credit bureaus. Then, you review this information and prepare to dispute erroneous items on your report.
Review Credit Reports
Many people underestimate the importance of reviewing their credit report and analyzing their credit score. A few years ago, the Federal Trade Commission (FTC) released a report which concluded that credit-based insurance scores accurately predict how often a person would file an insurance claim; the lower the credit score, the more likely a person would be to file a claim. Hence, if you have numerous negative items on your credit report, you will pay more in insurance. Also, a low score affects your chances of getting a good interest rate for a car loan or a mortgage and you can even have a hard time obtaining a credit card.
The first step in repairing your credit is getting your free online report from Equifax, Experian and TransUnion. These are the three main credit bureau agencies and are the ones widely used by lending institutions to determine your "credit worthiness." You can obtain these reports through the free online annual report program which Equifax, Experian and TransUnion have set up in conjunction with the FTC under the new FACTA laws of 2003 - www.annualcreditreport.com
Once you get your free credit reports, look them over and note the negative items listed. These negative items are the reasons your credit score is so low. You have a right to dispute these negative items with the bureaus and the creditors themselves. The credit bureaus have 30 days to conduct an investigation. You can dispute of negative items over and over as long as different reasons for the dispute are given.
Calculating Your Credit Score
You may wonder how did they calculate your credit score? Your FICO score is a credit worthiness prediction module developed by Fair Isaac Company or FICO. This score is based on the number of credit cards you have, their balances, and their payment histories. Also, they look at other loans you have outstanding such as installment loans, revolving loans, auto loans, and mortgage loans. The items here are listed in order of descending importance with the first item being the most damaging to your credit score.
- Loan Default
- Court Judgments
- Past Due Payments
- Late Payments
- Credit Rejections
- Credit Inquiries
Taking all of this information into account, you can review your credit reports and see which negative items are having the most negative impact on your credit score. It is important to address those items first. The credit score range is as follows:
Very Poor Credit (300 to 500) You really need to work on eliminating negative items.
Poor (501 to 579) You have some pretty substantial negatives that you can work on getting off your report.
Below Average (580 to 619) You have some minor negatives and should be able to increase your score pretty substantially with some hard work.
Average (620 to 679) You might have a hard time qualifying for some low percentage loans/credit cards so do a little clean up work and you will have a good to very good score.
Good (680 to 719) Although this is not perfect, you can still qualify for low interest loans and credit cards just not A-paper quality loans.
Very Good (720 to 799) You will have no problem getting good interest rates on loans and obtaining A-paper loans.
Excellent Credit (800 +) The sky is the limit!