What You Should Know About Your Consumer Credit Report

 

free consumer crdit reportsEveryone knows how important it is to keep a good credit report in general but an important factor of that is the consumer credit report. Consumer credit reports will dictate whether you will be granted a credit card or not. While a lot are aware about the concept, only few know what their actual credit reports are, much more their personal credit report. Fair Isaac & Co. has developed a credit score which specifically weighs the odds of a consumer paying his bills. This is what credit companies base their decisions on whether to extend credit to a consumer or not.

FICO scores range from a minimum of 300 points which equates to a consumer having a high risk of not paying his bills to a maximum of about 850 points. Equifax, a top credit agency, stated that they have used the FICO score of an applicant to decide more than 75% applications they receive. It has been reported that back in 2003, 50% of American credit applicants had consumer credit reports with 700 to 800 points. The data now is not that appealing.

There are five factors that are considered in coming up with a FICO score. Your previous credit performance is a major factor together with the current level of indebtedness you are in. The availability of credit types coupled with the amount of time you have been taking advantage of such also play a major role in computing your FICO score. Finally, any and all credit applications you are currently applying for is also looked into. These are five things you have to keep organized and in good standing for you to get a good FICO score.

The Importance of Your Report

The report from Equifax has seven sections. Each equally important and the whole is a comprehensive data about a person and his ability to maintain credit. The first section details personal information, which you should ensure to be as correct and accurate as possible. A printout of a credit report should be discarded properly as the first section is enough for identity thefts to victimize you and ruin your personal credit report. This section contains your social security number among other important details such as all your known addresses and even your employment history.

The next section is a complete summary of your credit history. Everything from all your accounts, whether such is open or already closed, is listed in this section. It also includes the type of accounts that you hold, from mortgages to revolving accounts and others. The number of times you have inquired about credit in the past 12 months or so are also included. Your accounts are also listed in a way to reflect which are in good standing and those that have overdue payments.

Some think that having a lot of available credit will automatically raise your credit score. The truth is, a single credit line in good standing is far better than having three available credits that you have never used at all. The availability of credit is overshadowed by the ability of a consumer to pay his bills on time. Financial institutions assume that you will always max out your available credit. This is how they compute your ability to pay. For example, it is better to have a $2000 maxed out credit line but to which you never miss out a monthly payment rather than having a $10,000 unused credit line. Once a bank assumes that you max out that higher credit line, they will then factor in your expenses and your salary whether or not you can make the monthly payments without any lapse.

The third section is just a detailed account of the second section. This will include the account name itself and even the dates that each account were opened and the contact details of the issuing institution of each particular credit. Other than stating which accounts are in good standing or with overdue amounts, details such as balances and dates of each and every payment are also reported in the section. It will also reflect a summary of accounts with negative records such as overdue payments. Make sure that details are accurate and feel free to contest any discrepancies.

The fourth section does not have a direct impact on your credit report but will be affected by the data in some way. This section deals with credit inquiries which are either hard or soft. Soft inquiries are generated when current creditors simply check your status which they may want to see if you can be offered new accounts. Soft inquiries also come from you when you check on your accounts. Hard inquiries are those that come from companies that do not have a creditor relationship with you. These are called hard inquiries because a copy of your credit report is actually requested. All inquiries within the past twelve months are tabulated and computed as part of your current credit score. Hard inquiries have negative impacts while soft inquiries barely have an effect.

The fifth and sixth sections are those that you should strive to keep clean. These two sections list accounts that are already overdue and turned over for collection actions. The fifth section is the first stage of a collection action. It merely means that the creditor has already deemed your account to be delinquent, it is more than overdue. The sixth section lists much graver actions as these are the accounts that are already due to be collected through court judgments such as garnishments and liens on your property.

The seventh section is merely an advisory list of how you can dispute any or all of the information provided in your credit report. You can only do something about incorrect data. Any and all information that is true and correct will remain in your report, even after you have cleared such accounts. The only thing to do is to wait for a full seven years as credit reports are required by the Federal Trade Commission to include every detail of your credit activity for the past seven years. There are exceptions to the 7 year period, details of bankruptcy remains listed for a full decade and information about lawsuits remain listed only while the cases are pending.

How These Impact Your Score

As mentioned earlier, your ability to pay and your credit activity plays an important role in getting your FICO score. Having a high salary and being debt free is no better than having overdue payments. What is looked into and evaluated by the FICO score is the probability of one person to pay his bills. You are considered inactive when you do not have a credit line to pay off. Without a history of credit activity, your free FICO score will not reach 850. There will be no basis or background for your likelihood to pay your bills. Having the money to pay does not automatically mean that you will actually pay.

A more complicated situation is presented by the size of the actual bill. Late payments are also a major negative influence on your credit score. Regular and on time payments do not make a good credit score if the bill is large based on your income. Small overdue payments are also bad for your credit score. A good scenario involves small bills in relation to your income that is regularly paid on time.

You Should Check Your Own Credit

Take advantage of obtaining a free personal credit report whenever you can. It would help you maintain your credit in good standing if you can keep track of your credit activity. A free consumer credit report is also a good tool to foresee whether your prospective credit application will be approved or not. You can also check if data included is correct and you can have any discrepancies corrected even before a creditor or any institution decides to make an inquiry.

Knowing your own credit report will help you decide on whether you should push through with a huge investment or not. If you have a good report, then chances are you can maintain such. Remember that lower interest rates are given to those who have good reports. A bad report from the start will tend to get worse if you push through with a significant investment.

Reputable and trusted credit bureaus are Trans Union, Experian and of course, Equifax. You can order and obtain your credit reports from then almost instantly. They charge an average of $50 for every person who requests a credit report. These bureaus are independent from each other and may have varying reports, you may want to try to get a report from each of the three mentioned for a more accurate and detailed report.

Conclusion

Just like a disease, prevention is the best cure. Maintaining a good credit score and preventing a bad one is the best you can do. Remember that any negative information stays on your report for as long as a decade no matter how good your credit has been for most of the period. A single negative detail has a huge impact on your overall credit score. If a negative detail escapes your plan to prevent a bad credit score, the only thing to do is to wait it out. Make sure that you never skip on any payments and that you should try to keep your credit limits to as small as possible. As they say, stick to what is necessary.

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