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What your credit report says about you!
Did you know your credit score is your complete credit history summed up in a three-digit number? And a very powerful number. Your score can determine if you get a mortgage, car loan, credit card, or even things like insurance and cell phones.
Your credit score is important—it’s like your handshake, resume, and reputation—it represents who you are.
Three main credit reporting agencies, Experian, TransUnion & Equifax, continuously gather a tremendous amount of information about you and then apply it to a set formula to determine your score. Everyone has three different scores, one with each agency.
It’s important to note creditors are not required to submit information to all three agencies. In fact, some send data to just one. Each agency weights the information differently so your three scores may differ, but they’re typically within a reasonable range. Credit scores range from 300-850. Here’s a quick guideline: Excellent: 750+; Very Good: 720-749; Acceptable: 660 to 719; and anything lower may be troublesome.
The credit agency formulas are complex, and there’s not enough space to fully explain them here. One thing to remember is your score is a prediction of the likelihood you will be 30 days late on any financial obligation within the coming 12 months—the lower the number the greater the odds you may miss a payment. Creditors use these sophisticated predictions to help determine if they should issue you credit. Beyond just a Yes/No, your score may impact your interest rate, so keeping your score high can translate into future savings!
For real estate purchases, the focus is generally on your median score (meaning the highest and lowest of the three are discarded). This prevents an agency from unfairly impacting your score positively or negatively; however, creditors consider all information in your report.
For example, if one agency knows you have a medical payment in collections, that’s evaluated during the loan approval—even if your median score is good. Unpaid judgments, taxes, collections, foreclosures, bankruptcies, and even credit counseling have a major impact. Other influential factors include:
- Payment history (do you make your payments on time, etc.)
- Amount of outstanding debt
- Percentage of your available credit you’re using (balance vs. available credit)
- Length of credit history
- Recent inquiries on your credit report (how many times you’ve applied for credit, the amount, to who and when)
- Types of credit you already have
Using credit wisely and diligently, as well as making at least the minimum on-time payment will assist in building a strong score. People who demonstrate they can manage the credit they already have will tend to score high; those who do not, score lower. Please always consider the consequences when making decisions that impact your score. For example, just one late mortgage payment is serious and could impact your next home loan.
Interestingly, there are often items in your report that don’t directly affect your score but can be evaluated by a lender or employer, including names you have used, where you have lived or worked, and the duration.
Your credit report shouldn’t be a mystery. You have a right to review it anytime and you may request one free credit report every year. It’s a good idea to review it so you’re aware of what your creditors see. Request your free report at www.annualcreditreport.com or call 1-877-322-8228.
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