About Your Credit

Credit Reports

It is important to realize the decisions you make now about handling your finances and borrowing money will affect you in the future. Companies known as credit bureaus keep track of your debts and how you repay them by communicating with your lenders. These same agencies make this information available to other lenders in the form of a Credit Report or a Credit Score. Creditors, companies that issue lines of credit or services including car loans, use this information to determine just how much they want to lend you, and just how much they will charge you overall.

Your credit score represents your individual financial trustworthiness. The better your credit standing, the more likely creditors will be willing to work with you. By maintaining good credit, you will receive lower interest rates, lower payments, and greater ease in borrowing money. Good credit means that your history of payment, employment, residential status and salary make you a good candidate for a car loan.

Conversely, bad credit can be a problem, and prevent creditors from doing business with you. Poor credit results when you make payments late or not in full, and even borrowing too much money can signal a red flag that you are over extended and may be unable to make payments. What does all this mean? Well, it means that you might have trouble getting car loans, a mortgage, credit cards, a place to live, and sometimes even a job. Good credit is important both now and in the future. In most cases, it takes seven years for accurate, negative information to be deleted from your credit report. Bankruptcy information takes even longer to be deleted, and may remain on your report for 10 years.

A poor credit history can haunt you for years, which is why its best to learn how to maintain good credit before there is a problem. The process may seem complicated at first, but it gets easier once you understand the basics of credit and how it works.

You can, and should, find out your credit score before you apply for credit. Some unscrupulous auto dealers have been known to lie about your credit score in order to give you a higher interest rate. You can access your credit score from FreeCreditScore.com.

Your credit payment history is recorded in a report maintained by consumer reporting agencies or credit bureaus such as Equifax, Trans Union and Experian. Your credit record contains information provided by businesses and public records - information such as court documents, property taxes, residence, income, debts, and credit payment history.

When you apply for a loan, lenders use a scoring system of their own or one provided by the credit bureau agencies, to help determine whether to give you credit. This statistical program uses information provided by the credit bureaus to help predict your credit worthiness. Credit history is important and affects all of us at some point in our lives. Lenders generally take into account: (1) how promptly you pay your bills; (2) how much credit you've had and what kind; (3) how much you owe other creditors; (4) your income and (5) your employment and your residence history.

You have a right to review your credit payment history on file with the credit bureaus. The Fair Credit Reporting Act (FCRA) was established, in part, to ensure that accurate and complete information is maintained by the credit bureaus.

How to Get Your Credit Report

If you have been denied credit because of something in your credit report, you are entitled to a free credit report so you can see the evidence that the credit grantor relied on to make its decision. Even if you have not been denied credit, you can receive a copy of the report free once each year to determine its accuracy. This also depends on the state you live in. Other times the fee is nominal. It makes sense to check your credit report once a year to make sure all information reported is up to date and correct. If you find any mistakes, you have the right to get them corrected. You can request the reporting agency to investigate the disputed information and correct the error at no charge. You can also add a written statement to your credit file.

Though many local credit bureaus exist, three of the most well known and commonly used are:

How to Improve Your Credit Report

You should review your credit report carefully for anything that you think could be wrong. Contact the credit bureau that sent the report in writing to correct any mistakes.

Creditors like stability, so they do not like it if you move around or change jobs frequently. Have a verifiable address. They need to be able to open the phone book and verify the information on your application.

Make every attempt to keep your credit history clean. The best thing you can do is to avoid any late payments. Even though you might always pay your debts, the key from the lenders' perspective, is to pay your debts on time. Also, try to live within your means and do not overextend yourself, as lenders will not grant credit if they feel you already have too much debt. It is always better to pay more than the minimum monthly payment on your loans and your credit cards. This reduces your principal balance and improves your overall debt ratio.

If you have too much overall debt and have the ability to pay some of it down, you may choose to do so. Reducing your debt can be important when you want to apply for a mortgage or an automobile loan.

It is also important to establish a good payment record in your own name. You may want to consider an individual rather than a joint account. Make timely payments, stay well within your credit limits and manage your overall debt. This will increase your chances for earning more credit in the future.