Know What Your Credit Score Means
Your credit rating can affect some very critical elements in your life, including employment, housing, and obtaining a loan. A poor credit rating can create a barrier to obtaining your goals, so it is important that you educate yourself on the subject of credit and learn how to use credit as an asset to help you achieve your financial dreams.
Sometimes known as your “financial GPA”, your credit score helps mortgage lenders, car loan companies, credit card companies, cell phone companies, landlords, and employers determine your credit worthiness. Your score is based on your rating in five general categories: payment history, total indebtedness, length of credit history, new accounts and credit requests, and your credit mix.
What is a Credit Report?
A credit report is a record of your credit activities – for example, any credit card accounts or loans you may have. Your credit report is a summary of these accounts, their balances, and how regularly you make payments. It also shows any delinquent bills.
Credit bureaus collect and store information that appears on your credit report. There are three major credit bureaus that operate nationwide, including Experian, TransUnion, and Equifax. Credit bureaus provide information to current or potential creditors, current or potential employers, current or potential insurers, government agencies that may provide you with benefits, and even potential landlords. The organizations or companies that receive your credit report use it to make decisions on things such as whether or not they want to do business with you or what kind of rates they will charge you.
In general, the information on your credit report stays on your report for seven years. If you file bankruptcy, that stays on your report for 10 years.
Obtaining a Copy of Your Credit Report
Since your credit can affect so many critical aspects of your life, such as housing, employment, and getting a loan, it is important that you regularly review your credit report. You are entitled to one free credit report every 12 months from each major credit bureau. Your credit report can be requested online at www.annualcreditreport.com or by contacting the companies directly by phone or mail.
Keep in mind that your credit report can be different at each bureau, so it is a good idea to request copies from each one. It has been suggested that you view your credit report three times a year, once from each major bureau.
P.O. Box 105873
Atlanta, GA 30348
Experian (formerly TRW)
P.O. Box 2104
Allen, TX 75013-2104
Consumer Disclosure Center
P.O. Box 1000
Chester, PA 19022
(800) 916-8800 or (800) 888-4213
Components of a Credit Report
Usually there are four types of basic information contained in your credit report:
Your full name, any known aliases, current and previous addresses, social security number, year of birth, current and past employers, and, if applicable, similar information about your spouse.
The accounts you have with banks, retailers, credit-card issuers, utility companies, and other lenders. Accounts are also identified by type, such as mortgage, student loan, revolving credit, or installment loan. The date the account was opened, how much you owe, your credit limit, any co-signers, status of the account and your payment pattern over the past two years is also listed.
Public Record Information
State and county court records on bankruptcy, tax liens, or monetary judgments.
The names of those who have obtained copies of your credit report within the past year (two years for employment purposes). There are two types of inquiries. Hard inquiries are ones you initiate by applying for a loan or setting up some other kind of credit account. Soft inquiries are made by companies that send out promotional information, such as pre-qualified notices, or current creditors who are monitoring your account.
Filing a Dispute
If you see something that is incorrect on your credit report, you can file a dispute with the credit bureau. There will be instructions on your credit report on how to file a discrepancy. Usually, you will need to fill out some kind of form and submit it to the credit bureau. Your creditor has 30 days to respond, so fixing mistakes on your credit report can take time.
Effects of Bad Credit
When you are living on a tight budget, or even if you’re not, it is easy to get caught in a never ending debt cycle by overextending yourself financially. If you consistently spend more money than you bring it, you’ll eventually begin to feel the effects of bad credit.
Many people do not realize the side effects of a poor credit rating or don’t think having a good credit rating is important. These days, a poor credit rating can virtually affect every aspect of your life. Whether you are consistently late paying your auto loan or over the limit on your credit card accounts, a derogatory credit report can limit your lifestyle and create a barrier to your personal goals. Following are some of the effects you may feel:
- Trouble Getting Loans Approved
- High Interest Rates
- Security Deposits on Utility & Cell Phone Service
- Difficulty Securing Rental Housing or Employment
- Higher Insurance Premiums
- Decreased Mental & Physical Health
Improving Your Credit Score
Whether you have a really low credit score, or even an average credit score, there are things you can do to improve it. If you haven’t always managed your credit wisely, first focus on rebuilding your credit history. Then move onto improving your score. The best strategy for improving your credit is to consistently make wise decisions over time, and remember that rebuilding your credit takes time. Here are a few tips to start on your path to improving your credit history.
- Check your credit report.
- Improve your payment history.
- Reduce the amount you owe.
- Increase your length of credit history.
- Take on new credit accounts wisely.
- Create a credit mix.
Working with a Credit Coach
If your credit history is preventing you from reaching your financial goals, there are many organizations out there that can help you in rebuilding your credit and learning how to improve your credit score. Most of these organizations are non-profits who are dedicated to helping people, but beware of some companies that claim quick credit fixes. These are likely to be scams that could leave you in worse financial shape than before.
Many members of the Great Plains Native Asset Building Coalition offer credit coaching services. Visit the Credit Coaching page on our website to find a program near you.