What is a Credit Report?
A credit report is a compilation of information about you from a variety of sources including the companies which have granted you credit, court records, and you.
- Your identifying information includes your name and any previous names you may have had. It also includes your current and former addresses, your Social Security number, birth date, and employment information, both previous and current.
- The holders of your established accounts report the type of account you have, when it was opened, your overall line of credit, the balance on the account and your payment history.
- Inquiries on your credit report appear whenever you apply for new credit or give your permission for a credit grantor to request a copy or your report. Multiple inquires in a short period of time may be a potential warning sign that you are about to take on too much debt and therefore impact your overall credit rating.
- Your credit report contains public record and collection information about you. Public records will show items such as bankruptcies, tax liens, judgments, foreclosures, law suits and wage garnishments. Collection items are reports of bad debt which has been assigned to a collection agency.
What are Credit Bureaus?
Collecting, maintaining and selling information about credit histories of individual consumers throughout the country fall to the three major credit bureaus. To request your free credit report from one or all of the credit reporting agencies, go to www.annualcreditreport.com. It is recommended that you request a report from each bureau once every four months; this way you can see your report for an entire year! It also gives you a reliable way to monitor your credit report for any inaccuracies.
The information contained in your credit report is used to compile your credit score, also referred to as your FICO score.
What is a FICO Score?
FICO scores range from 300 to 850. The higher the score, the better for the individual trying to obtain credit, as it implies that this person is better credit risk.
Overall, payment history has the biggest impact on FICO scores, at 35%. It includes the following:
- Installment and revolving account payment information
- Adverse public records and collection accounts
- Length of time an account has been delinquent
- The amount of dollars in past due status
- How recently the adverse information occurred
- The number of past due accounts
The second most important part of the FICO score is the amounts owed portion with a weight of 30%. This part consists of:
- Overall amount of debt
- The amount of debt on different types of accounts – revolving versus installment
- The absence of a certain type of debt such as a mortgage
- The number of accounts which carry balances
- The percentage of a credit limit used on a revolving account
- The percentage of installment loan balance still owed
The third part, the length of credit history, accounts for 15% of the score and includes:
- The time the accounts have been opened
- The time the accounts have been opened by account type
- The time since most recent activity
New credit accounts for 10% of the FICO score. The items in this category reflect the following:
- The number and overall percentage of new accounts by account type
- Recent inquires
- The time elapsed since the accounts have been opened, by type of account
- The time elapsed since the recent inquiries
- If past due history on report, the ability of the creditor to rebuild good payment history
Finally, the type of credit used category is weighted at 10% in most cases. It includes the overall number of accounts by type and their prevalence.
How do I get a good credit score?
The best way to assure good credit is to manage accounts responsibly over a length of time. Some good advice to follow:
- Pay bills on time
- If you have had delinquencies, catch up and stay current
- If you have trouble paying bills, contact your creditors and/or see a credit counselor
- Keep balances low
- Pay off accounts rather than doing balance transfers
- Do not open new accounts that you don't need
- Closing an account does not make it disappear from your credit report