Your Credit Rating - Know The Score

If you’ve applied for a loan, you already know that one of the first things the lender will do is check your credit score. This score will dictate the type of loan for which you will qualify (fixed or adjustable), as well as its rate and terms. Understanding the components of this report, as well as how to modify it in your favor, could make the difference between getting a high or low interest rate, or even effect your ability to qualify at all.

A credit report is a printout of your credit history over the past seven to ten years. If you share credit with anyone (spouse, child, parent) the report will not distinguish among borrowers. It shows credit cards, both opened and closed, loans of all kinds (home, car, boat, etc.), as well as any judgments or liens which have been filed against you. If your ex-spouse has filed a lien against you for alimony or child support, or if you owe money to any governmental agency (property tax collector, IRS), those will also show up. In addition, any foreclosures, bankruptcies, or evictions will appear.

But the report is not simply a list of these items; it also contains your payment history. Each company with which you have established credit provides information to centralized credit reporting agencies. This information includes: when you established the credit; the type (revolving, installment, etc.); the maximum amount borrowed; and your payment record. Do you make your payments on time? How many times have you been 30, 60, or 90 days late (or more)? Is your account still open or has it been paid in full? Did the account go to a collection agency, and, if so, were any funds recovered? In addition, the report shows any inquiries made by credit agencies.

So what does all this mean to you and, more importantly, what can you do to change any negative items? One of the first things you can do is to find out exactly what your report shows. If you have been denied credit, you have the right to receive a copy of your report within 30 days of the denial. In addition, anyone can order a copy of his own credit report. There are three major U.S. credit reporting bureaus, Equifax, Experian, TransUnion.

The problem is that and not all companies report to all three. So if you want your full credit history, you will need to buy a consolidated report. However, once a year, you are entitled to get a credit report from each agency for free. To request your free annual reports, go to https://www.annualcreditreport.com/ .

Once you get the report, read it carefully. If something does not seem correct, you could be the victim of credit fraud. The National Fraud Information Center http://www.fraud.org/ can help. If you wish to dispute something on the report, contact the agency reporting the error. If you are unable to get satisfaction from the reporting company, contact your local consumer protection agency or the state Attorney General’s office.

If there are blemishes on your credit report, you may be able to mitigate their negative effects by attaching letters of explanation. You should also realize that too many credit inquiries can also be a red flag. So only apply for those credit cards you really need.

Perhaps most important is to understand the ramifications of your payment habits. Even minor late payments can effect your rating. And the trend in the lending industry is to discriminate even between excellent credit and perfect credit. The key is to repair what problems you can and make sure any future ratings are problem-free. In this way, you will improve you credit rating and obtain the best loan possible.