Understanding credit reporting basics is the first step to managing your credit score. With www.identityiq.com Credit Monitoring the resources to better your credit knowledge are at your fingertips.
Credit Report Basics
Your credit report contains details about your financial behavior and identification information.
This user-friendly report is sometimes called a credit file or a credit history. Credit Reporting agencies collects and organizes data about your credit history from your creditor’s and public records. They make your credit report available to current and prospective creditors, employers and others as permitted by law, which may speed up your ability to get credit. Getting a copy of your credit report makes it easy for you to understand what lenders see when they check your credit history.
How Can I Get My Credit Report?
To obtain the free credit report that you are entitled to under federal law, you must go to www.annualcreditreport.com. There, you can get your credit report from all three credit reporting agencies – Experian, Equifax and TransUnion – once every 12 months. For daily monitoring of your credit report from each of the three credit reporting agencies, use privacyguard.com Credit Monitoring. This service makes your personal credit report available online 24-7. You have peace of mind from knowing that your credit records are being monitored daily. If any irregular account activity is detected, we’ll email you promptly.
How Often is My Credit Report Updated?
In general, creditors forward information to the credit reporting agencies monthly. The day of the month that each individual creditor sends updates varies. In other words, reporting agencies might receive an update from creditor A on the first of every month and from creditor B on the 11th of every month, etc. This is why it’s important to have access to your credit report every day.
A high credit score is extremely valuable-it can save you tens of thousands of dollars in mortgage interest, lower your auto insurance premiums, and may even help you land your next job.
Credit Score Basics
What is a credit score?
A credit score summarizes your entire credit report information into one number. This number is calculated by a mathematical equation that evaluates many types of information from your credit report at that particular credit-reporting agency. By comparing this information to the patterns in thousands of past credit reports, scoring identifies your level of credit risk. Your score tells a lender how likely you are to repay a loan, or make credit payments on time. The higher your score is, the better chance you have of getting the credit you apply for.
How is it used?
Credit scores are one of the main tools creditors, employers, insurance and finance companies rely on to determine your creditworthiness. Your score is a quick snapshot that is often used when credit decisions are made quickly. Creditors may also obtain your full credit report, to access more detailed information to aide their decision on your level of risk.
How is my credit score calculated?
A credit score summarizes your entire credit report information into one number. This number is calculated by a mathematical equation that evaluates many types of information (score factors) from your credit report at that particular credit reporting agency. There are many types of score factors that can have a positive or negative affect on your score. The factors are listed in order of the degree to which they affect your score negatively, meaning that the factor listed first is what most decreased your score. Some examples of score factors include but are not limited to:
Too many inquiries (how often you apply for credit)
Too many serious delinquencies (how timely your account payments are)
Too many recently opened accounts (how often you have opened new lines of credit recently)
Average balance of revolving accounts is too high (what you owe vs. available)
Too few mortgage accounts (what types of credit do you use)
Credit reporting agencies use many types of credit scores to evaluate risk for different types of credit. Mortgage lenders may use one type of score while auto dealers and credit card issuers would use other types of scores offered by the credit reporting agencies or that they have developed for their own purposes.
Monitoring your credit score
Your credit file is constantly changing every time new information is submitted from creditors. It’s important to be proactive and monitor it to improve or maintain your credit score. To improve your overall credit standing there are several positive steps you can take:
First, know what’s on your credit report, detailing your credit history from each of the national credit reporting agencies. Monitoring your credit file will help you understand the information behind your credit score.
Check for inaccuracies on your credit report. Be sure to examine your files from all three bureaus, as the information may not be the same on each one. If you find errors, take steps to dispute the information in order to remove it from your file.
If you are having difficulty paying your bills, develop a plan now. Make a list of everyone you owe money to and how much you owe. Contact your creditors and discuss payment options. Begin now to catch up with late payments.
Consolidate bills with a balance transfer to another credit card with a lower interest rate and also eliminate three or four other credit card accounts you currently have.
Identify ways you can decrease your spending and increase your income. Ask a friend or family member to help you come up with a realistic budget that will help you catch up with late payments.
Finally, don’t use credit cards until you are in a financial position to use them responsibly again.
Your credit report shows your history of using credit, including the accounts you have (both opened and closed), your payment history, credit limits, and amounts owed.
Credit Report Guide
This easy to read visual road map to understanding your credit report identifies each section of the report with clear, concise definitions to help guide you while reviewing your credit report.
Get the definitions of common terms and phrase used throughout the your credit reports and credit scores.
account – An account represents a relationship between a company (the account owner) and consumer, where the consumer purchases a product or service in such a way that represents the transfer of money over time.
account number – A reference number assigned to accounts, by the creditor or collection agency, to uniquely identify a consumer as the owner of that account.
account reviews – Inquiries made into a consumer’s credit history by creditors, with whom the consumer has a current relationship. These inquiries are not included in the business version of a consumer’s credit report.
adverse action – An unfavorable action, such as the denial of credit, insurance or employment, taken by a creditor or other entity, affecting a consumer. Under the Fair Credit Reporting Act, creditors must disclose the reasons for any adverse action.
adverse information – Information about a consumer that a creditor or other entity considers a risk or unacceptable, such as a past due account.
bank card or debit card – A credit card issued through a bank.
bankruptcy – A legal proceeding to give a person or business some relief from debts. See also Chapter 7 Bankruptcy, Chapter 11 Bankruptcy, Chapter 12 Bankruptcy, and Chapter 13 Bankruptcy.
business version (of a credit report) – An abbreviated version of a consumer credit report. The business version of a credit report is what creditors see and does not contain promotional inquiries or account reviews.
Chapter 7 Bankruptcy – The chapter of the Bankruptcy Code that provides for court-administered liquidation of the assets of a financially troubled individual or business.
Chapter 11 Bankruptcy – The chapter of the Bankruptcy Code that is usually used for the reorganization of a financially troubled business. Used as an alternative to liquidation under Chapter 7.
Chapter 12 Bankruptcy – The chapter of the Bankruptcy Code adopted to address financial difficulties of the nation’s farming community.
Chapter 13 Bankruptcy – The chapter of the Bankruptcy Code in which debtors repay debts according to a plan accepted by the debtor, the creditors, and the court.
charge card – A credit card that requires full payment of the bill each month; no interest is charged. The American Express Card and Diners Club Card are examples.
consumer version (of a credit report) – The consumer version of a credit report lists inquiries, such as promotional inquiries and account review. Only the consumer can request this version of their credit report. Creditors cannot see this version; they see only the business version of credit reports.
credit – A consumer’s ability to make purchases, obtain services, or borrow money based on his or her promise, ability, and demonstrated willingness to repay.
credit reporting agencies – A company that gathers information about how consumers use credit, which the credit reporting agency in turn provides to potential creditors, employers and others who have a legally-recognized reason (permissible purpose) to inquire about the creditworthiness of an individual.
A company that gathers information about how consumers use credit, which the credit bureau in turn provides to potential creditors, employers and others who have a legally-recognized reason (permissible purpose) to inquire about the creditworthiness of an individual.
Credit risk – An assessment of a consumer’s likelihood of fulfilling the terms of a credit agreement.
Credit score – A mathematical calculation that reflects a consumer’s creditworthiness. The score is an assessment of how likely a consumer is to pay his or her debts.
Creditor – Person or business to whom a debt is owed.
Creditworthiness – A description of a consumer’s credit behavior and management that leads to a creditor’s decision whether or not to make an offer of credit.
Date closed – The date when a credit agreement or account was terminated.
Date opened – The date when a credit account was established.
Default – Failure of a consumer to make loan or credit repayments as agreed in a loan or credit agreement. See manner of payment.
Dispute – To question the accuracy of information in a credit report.
Fair Credit Reporting Act (FCRA) – The FCRA protects consumer’s privacy by defining permissible purposes a business or individual must have when requesting a credit report; provides consumers with the right to obtain copies of their credit reports for free if denied credit; defines obsolete information; and declares that reasonable procedures must be used to ensure accuracy.
Fraud – Intentional misuse of information of truth in order to induce another to part with something of value or to surrender a legal right.
Identity – The distinguishing character or personality of a consumer. Also includes any unique information about a consumer such as a Social Security number.
Identity confirmation – The successful verification of a consumer’s identity.
Inquiry – An examination of a consumer’s credit history.
Installment loan – A credit account in which the debt is divided into amounts to be paid successively at specified intervals set by the terms of the loan.
Installment loan account number – A reference number assigned by the creditor to a specific installment loan account (for example: auto, student, furniture, jewelry).
Lien – An interest that a creditor has in a consumer’s property that lasts until the satisfaction of some debt or duty.
line of credit – Credit limit established by a creditor.
Manner of Payment (MOP) – A series of codes or statements used to show the payment habits (prompt, delinquent, etc.) of a consumer.
Mortgage – A document in which the owner pledges his/her/its title to real property to a creditor as security for a loan.
Mortgage account number – An account number created by a creditor that is usually found on either the monthly statement or coupon book issued with the loan.
Open account – An account that is active, still in use, or is closed, but still being paid.
Paid as agreed – A designation on the credit report that indicates the consumer is repaying the credit account according to the terms of the credit agreement.
Permissible purpose – The particular circumstances under which a consumer credit report may be disclosed by a credit reporting agency in accordance with the Fair Credit Reporting Act.
Promotional inquiry – An inquiry made into a consumer’s credit report for purposes of a promotional offer.
Public records – Information that is available to the general public, including tax liens, court judgments, and bankruptcy.
Retail card – A credit card that is issued by a retail store.
Revolving charge account – Credit automatically available up to a predetermined limit so long as a consumer makes regular payments.
Score – See credit score.
Secure Sockets Layer (SSL) – An Internet security standard that is used to establish a secure connection on the World Wide Web.
Skimmer – Skimmers are credit and debit card readers. When you give someone your card to pay, the card is run through an additional machine, which captures the information that appears on your credit card.
Tradeline – Any credit account such as a bank loan, credit card, or mortgage.