There are two numbers that control your adult life to different degrees: your Social Security number and your credit score. While everyone knows their SSN and it’s importance, most people don’t know their credit score, though we usually find out how essential it is to our quality of life when we apply for credit; some employers are even beginning to take a look at credit scores as part of the job application process.
Your credit score can be found by at the FICO website, which is a pre-qualifying agency that lenders use, by purchasing your credit report from a credit bureau or by signing on with a credit monitoring service. Of these three options, checking with a credit bureau is the most common, but it’s also the most confusing unless you know how to decipher your credit report.
Breaking Down A Credit Report
The credit report is broken down into three main section:
1. Personal data, such as your name, address, employment information and social security number
2. Public records, like bankruptcies, liens, wage garnishments and judgments
3. Creditor information, like types of credit accounts, the status of the accounts, your balance and who is responsible for the accounts.
After making sure that the data in the report is accurate, it’s time to break down the creditor information. First, you should go through the list and make sure that all of the creditors listed are accounts that you’ve actually opened, either as an individual or jointly. Your credit report will obviously be hurt if you have more adverse listings than good, but the type and status of your accounts also matters. The terms to look for are:
– Revolving accounts, which are monthly accounts with variable balances, like credit cards
– Installment accounts, which are monthly obligations with fixed amounts, like loans or mortgages
– Open accounts, account that are open and in good standing
– Closed accounts, account that are inactive and have a zero balance owed
– Charged-off accounts, accounts that have been written off by the original lender
– Collection accounts, accounts that are closed, and the balance has been placed with an agency for collection
There’s also a shorter section of inquiries that tells how many lenders have asked for your credit report. These fall into two groups: hard inquiries, which occur when you apply for financing, and soft inquiries, which occur when you pre-qualify for a service that involves credit.
The terms you need to know are:
CURR ACCT – an account that’s open and in good standing
CUR WAS XX-X – an open account that’s been delinquent in the past; the xx stands for how many days overdue, and the x will be the number of times you’ve been overdue ( for example, 30-2 or 60-1)
PAID – will be listed next to closed accounts with a zero balance
CHARGOFF – closed accounts with a balanced that’s been written off by the lender
COLLECT – outstanding accounts that are in collections
FORECLOS – if you’ve had a property seizure
BKLIQREQ – if you’ve filed bankruptcy
DELINQ 60 (or 30, or 90, etc) – accounts that are delinquent by 30 days or more
What Does it All Mean?
Although reading your credit report is easy once you know what you’re looking at, the types of accounts, then number of accounts you have and your overall payment history determine your credit worthiness. Your credit score is determined by:
Your credit score is determined by:
Payment history (35%)
Amounts owed (30%)
Length of credit history (15%)
Types of credit (10%)
New credit (10%)
To delve a little deeper, if you have accounts in good standing, but they’re fairy new, the balance is high or you have too many of them, it can god against your credit score. If you have accounts that have been charged-off, but still have an outstanding balance, that’s also a negative factor; charged-off accounts that have been paid, but bit gone into collections count slightly higher than paid accounts that were resolved by a collection agency.
What if My Credit Report is Wrong?
If you find inaccurate information in your credit report, you can dispute this information online through the agency that issued the report or you can request a form and dispute the inaccuracies via USPS. You may have to provide proof of any false information, including:
– copies of canceled checks or electronic bank records
– letters from creditors
– bankruptcy discharge papers and court documents pertaining to judgments
– proof of address
– proof of legal name change or marital status
Everyone is allowed to obtain a free credit report once a year; you can also request one if you’ve been turned down for credit. Even if you aren’t looking to by a home or car in the bear future, it’s a good idea to check your credit report on a regular basis to look for false or outdated information. Information on finding your credit report can be found online at the websites of the three main credit reporting agencies: Equifax, TransUnion and Experian.