Char Telkamp
Part 1 of 2. This week we’ll look at the importance of knowing and understanding what’s in your credit report. Next week, we’ll look at how to remove negative incorrect information.
Many people find it hard to read credit reports so they don’t bother checking the information that the reports contain. While the goal of credit bureaus is to maintain fair and accurate records, mistakes can and do happen. By checking this information on a regular basis, you can head off possible problem areas or fix negative information.
Who uses your credit report? Well, financial institutions that need to make a decision on your credit/debt worthiness, of course. But also a potential employer, landlord or insurance agency may look at it to make a decision as to whether they want to do business with you. Fair? Tough! They’re going to use it anyway.
The biggest mistake you can make is to not know what’s on your credit reports. Yes, reports. You can’t just look at one and know what’s on the others. You have to get all three reports. Of course they format the reports in different ways so then you have to learn how to read them. But you must learn, as not to learn is akin to giving them permission to report inaccurate, negative information about you.
The Credit Score
By having your credit history compiled into a number, you and those checking on you can more easily understand how your credit history compares to others. Individual lenders and credit bureaus have their own formulas.
Usually, about 35 percent of your score is based on your bill paying habits. Thirty percent is based on how much you owe vs. how much credit you have available. Fifteen percent of you score is based on how long you have managed your credit. Ten percent is based on the mix of credit you have. Having a mix of types of credit is seen as good. Only 10 percent are based upon your pursuit of new credit.
See How Creditors Rate You
When you get a copy of your credit reports, you have most, if not all, of the information that creditors use when deciding to grant you credit.
The three traditional characteristics that creditors rate when judging your credit are capacity, character and collateral. When you get your credit reports, you can read them with these characteristics in mind.
Creditors want to know not only can you pay off a debt, but will you. To judge your character, creditors look at your credit history. Some people may have the income to afford the debt, but may not have the budgeting ability to always pay their bills. So a creditor will check your bill-paying record. He’ll also look at the stability of your work history and how long you’ve lived at your current address.
After determining if you can and will repay the debt, a creditor wants some further risk insurance in the form of collateral. He’ll want to know what assets you have that could cover the debt if you lost your income.
How To Read A Credit Report
Once you have your credit report, it is important that you know how to read the report and understand the special coding included. Although credit reports don’t look alike, they contain many of the same items. When reviewing, check the details. Make sure your name is spelled correctly and that your date of birth and social security number is correct. If these items are incorrect, this could cause some problems. Someone else’s credit history may be mistakenly included in your file!
Your creditors are listed on the report. The first thing to do is to find and circle each of the negative remarks or “dings” in your credit file. Information on these reports is usually coded like your bank statement. The law requires credit bureaus to explain anything on the report that you cannot understand. You will find a key to the coding symbols. Next, look for damaging remarks in the Historical Status section of your report.
Your credit report will also include an “Account Profile” column. This column contains a summary rating for each account. A summary may read “positive,” “negative” or “non-rated”:
1. “Positive means you pay on time.
2. “Negative” means serious credit problems, perhaps a defaulted debt.
3. “Nonrated” may signify a few late payments, which still gives you a weak credit report even when there is no strongly negative entry.
Each negative or non-rated entry has a code that reflects the nature of the problem. Your goal is to protest and eventually remove every negative or non-rated profile.
Once you have your reports and know how to understand them, you must be vigilant because new information is constantly being added. Is it accurate? The only way to know is to check your reports on a regular basis. Remember there maybe companies that you are doing business with that are looking for a black mark on your report so that they can raise their rates on your account. The only way you can win this game is to stay on top of it.
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