Credit Reports and What You Should Know

How do lenders determine who is approved for a credit card, mortgage, or car loan? Why are some individuals flooded with credit card offers while others get turned down routinely? Because creditors keep their evaluation standards secret, it is difficult to know just how to improve your credit rating.

It is important, however, to understand the factors and to review your credit report periodically for any irregularities, omissions or errors. Reviewing your credit report annually can help you protect your credit rating from fraud and ensure its accuracy.

Credit Evaluation Factors

There are many factors that go into determining your credit. The following list includes of some of the major factors considered:

Age
Residence
"Authorized User" Payment History
Checking And Savings Accounts
Bankruptcy
Charge-Offs
Child Support
Closed Accounts And Inactive Accounts
Jobs
Payment History
Recent Loans
Collection Accounts And Charge-Offs
Cosigning An Account
Credit Limits
Credit Reports
Debt/Income Ratios
Department Store Accounts
Payment History/Late Payments
Finance Company Credit Cards
Income/Income Per Dependant
Mortgages
Revolving Credit
Name/Alias
Number Of Credit Accounts
Fraud
Inquiries

These factors may be used, and weighted, in determining credit decisions. Credit reports contain much of this information.

Obtaining Your Credit Reports

Credit reports are records of consumers' bill-paying habits collected, stored and sold by credit bureaus.

Credit reports are also called credit records, credit files, and credit histories. Under Federal law, you are allowed access to free credit reports. There are three major credit bureaus and thousands of smaller ones where you can obtain a credit report.

These credit bureaus offer the free credit reports and monthly credit reports and services for a fee.

Experian Credit Bureau: 888-397-3742 (Cost: Free or $14.95 monthly)
Equifax Credit Bureau: 800-685-1111
Trans Union: 877-322-8228 (Cost: $11.95 monthly)

If you have been denied credit, you can request that the credit bureau involved provide you with a free copy of your credit report, but you must request it promptly. Otherwise each of the bureaus will provide you a copy of the report for a fee. You can request a copy from their web sites (see links above) or 800 numbers (also listed above).

Disputing Errors In Your Credit File

The Fair Credit Reporting Act (FCRA) protects consumers in the case of inaccurate or incomplete information in credit files. The FCRA requires credit bureaus to investigate and correct any errors in your file.

Tip: If you find any incorrect or incomplete information in your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about thirty days to contact the creditor and find out whether the information is correct. If not, it will be deleted.

Be aware that credit bureaus are not obligated to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add that reference to your file. Some may do so, however, for a small fee.

Fair Credit Reporting Act (FCRA)

This federal law was passed in 1970 to give consumers easier access to, and more information about, their credit files. The Fair Credit Reporting Act gives you the right to find out the information in your credit file, to dispute information you believe inaccurate or incomplete, and to find out who has seen your credit report in the past six months.

Understanding Your Credit Report

Credit reports contain symbols and codes that are abstract to the average consumer. Every credit bureau report also includes a key that explains each code. Some of these keys decipher the information, while others just cause more confusion.

Read your report carefully, making a note of anything you do not understand. The credit bureau is required by law to provide trained personnel to explain it to you. If accounts are identified by code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau to supply you with the name and location of the creditor so you can ascertain if you do indeed hold an account with that creditor.

If the report includes accounts that you do not believe are yours, it is extremely important to find out why they are listed on your report. It is possible they are the accounts of a relative or someone with a name similar to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit in your name. This type of fraud can cause a great deal of damage to your credit report, so investigate the unknown account as thoroughly as possible.

Note: An annual review of your credit report is recommended.

It is vital that you understand every piece of information on your credit report in order that you be able to identify possible errors or omissions.

Paying Off Debt the Smart Way

Being in debt isn't necessarily a terrible thing. Most people are in debt between mortgages and car loans and credit cards and student loans. Being debt-free should always be a goal, but you should focus on the management of it, not the presence of it. It'll likely be there for most of your life, and if you handle it wisely, it won't feel so much like an albatross around your neck.

There are alternatives to shelling out your hard-earned money for exorbitant interest rates, and to always feeling like you're running behind and on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.

Know Where You Are

First, assess the depth of your debt. Write it down, using pencil and paper or computer software like Microsoft Excel or Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.

Record the day the debt began and will end (where possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged; you're going to break this down into manageable chunks while finding extra money to help pay it down.

Identify High-Cost Debt

Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.
Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.

Identify the card with the highest interest and pile on as much extra money as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.

Don't close existing cards or open any new ones as it won't help your credit rating.

Pay on time, absolutely every time. One late payment these days can lower your FICO score.

Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club that you've never used? Looks for line items you don't need.

Call your credit card companies and ask them nicely if they would lower your interest rates. It works sometimes!

Save, save, save

Do whatever you're able to do to retire debt. If you take a second job, earmark that money strictly for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

Bag Unnecessary Items to Reduce Debt Load

Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny accounts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.

Don't ever, ever miss a payment

You're not only retiring debt, but you're also building a stellar credit rating. If you ever decide to move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.

Do Not Increase Debt Load

If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.

Shop Wisely, and Put the Savings on Your Debt

If your family in large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride: Use coupons religiously. Calculate the money you're saving and slap in on your debt.

Each of these steps, taken alone, probably doesn't seem like much, but learn to adopt as many of them as you can and you'll be able to watch your debt decrease every month.