If you are like the vast majority of consumers, you understand how credit works, to a very limited extent. In other words, you have a line of credit somewhere, and as long as you do not exceed your credit limit and pay at least the minimum amount on time every month, everybody is happy. But there are some additional things about credit reports that you should know.
First of all, there are three major credit bureaus in the US ? Experian, Equifax, and TransUnion. Each of them maintain a credit report on you, including all past and present credit accounts and your credit history. But they do not share information between them, so each credit bureau has a credit score for you that is different. That is because not all creditors report to all three bureaus; in fact, very few of them report to all three.
Beyond that, how do inquiries into your credit report affect your credit score, or does it have any effect at all? The answer is that it definitely has an effect, but the type of inquiry determines the level of effect. For example, if you yourself apply for a new line of credit somewhere like for a new car or at a department store, this has the largest effect on your credit score. If you are approved, then your credit score reflects the fact that you now have this new line of credit which has been approved and the very real potential to extend yourself too thinly.
Sometimes a credit card company has a new product or service that they want to alert people to, but just people who meet their criteria, which is aimed at the type of person that they have deemed most likely to be receptive to their new offering. This type of inquiry into your credit report is known as a soft inquiry, done without your permission or knowledge, just to see if you meet their criteria for sending their ad, and this type of soft inquiry has little to no effect on your credit score.
One of the other factors that can adversely affect your credit score is the number of "pulls" or inquiries on your credit report. Yes, even time an inquiry is made to your credit report, that fact is recorded and becomes a part of your credit report with that credit bureau, also indicating whether it was a "hard pull" or a "soft pull". A large number of hard pulls on your credit report will definitely affect it negatively, especially if those pulls do not result in a similar number of newly approved lines of credit.
The time factor is also taken into account. For example, having 25 hard pulls on your credit report over a three year period of time is not necessarily bad, but having those same 25 pulls on your credit report over the course of two months is definitely going to set off a red flag with the credit bureau and negatively impact your credit score.
The bottom line is to not apply for credit ad hoc and at every opportunity. While it may result in a new line of credit, it may also lower your credit score to the point where those new accounts are actually COSTING your more via a lower credit score than they are really worth to you.
For many people, a credit report is something akin to a mystery novel. It's a little hard to understand, and you never know how it's going to turn out if you don't read the whole thing. But you really do have the power to take the mystery out of understanding what your credit report is, how it affects your life, and what you can do to improve that all important credit score. Let's begin with some basic definitions.
Credit Report
This is a written record of your financial transactions. It details the amount of your current debt, and how well you are repaying it. It also includes a record of past debts, and how/if they were repaid. Every open account you have will be listed, as well as any record of bankruptcies, foreclosures and judgments.
Credit Score
Based on the details in your credit report, you will be given a numerical score, that reflects your level of 'credit worthiness'. This number is based on:
* The number and types of accounts you have open. * How long you have held the accounts. * How many late payments you've made, and just how late. * Your current total accumulated debt. * Any attempts you've made to open more accounts.
Every company you apply for credit with will examine this score, to determine how likely you are to repay them any money they advance to you. Would you like to apply for a home or auto loan? A credit card account, or home improvement loan? Your current credit score will be the biggest determining factor in whether your request is approved.
The Big 3 Credit Reporting Agencies
*Equifax, based in Atlanta, Georgia. *Experian, based in Costa Mesa, California. *TransUnion, based in Chicago, Illinois.
Each of these nationwide credit-reporting agencies maintains a credit report on you. Since you have no way to know which one of these agencies a potential lender will contact, you need to keep track of the info contained in all three reports.
How To Improve Your Credit Report Score
Your credit report is a living, breathing document, changing with every entry made. If your score is bad now, there are a few things you can do to improve it.
* Examine each report thoroughly to make sure there are no mistakes.
If you find a company listed with debt outstanding, but you know you've paid it and have a receipt or cancelled check to prove it, you can make a challenge to that item on your credit report. The company you are challenging has up to 90 days to respond and defend the item, or remove it from the report. You should resist the urge to make a challenge without proper documentation of your payment.
* Close old credit card accounts.
Even if you aren't actively charging on them, these old accounts that remain open still add up in your total amount of credit available. This total line of credit is compared to your income, and alerts lenders to the fact that you can become overextended any time you choose.
* Never use more than 50% of your available credit.
Potential lenders want to see that you have money left over after paying your debts. They take this as a sign of good money management skills.
* Add favorable items (tradelines) to your credit report.
You can boost your credit score by making sure that debts you are paying on time now, or in the past, are listed in your credit report. These accounts are referred to as tradelines in the industry. It is entirely possible that a company you deal well with hasn't even made a report in to one or all three of the nationwide credit reporting agencies, so it's up to you to see that the good info makes it's way into your report to counteract the bad info.
Examples of tradelines:
* Installment loans
Car loans are a good example of an installment loan. Your current car loan may already be in your report, but what about car loans past? You can add a former car loan that was appropriately repaid onto your current report, adding favorably to your overall score.
In-store accounts for items like refrigerators, washer/dryers, and jewelry that are being paid for on an installment plan should also be included on your credit report if you are making your payments according to schedule. Many of these smaller stores only report to the credit bureaus if an account is placed in collections, ask them to send in a report of your payment history to add a positive tradeline to your credit report. Make sure the creditor notifies all three credit bureaus.
* Mortgage Loans
Again, a current mortgage would likely be listed already, but if this is not your first mortgage, and you have other successful mortgages in your financial past, make sure they are listed. This all still weighs in your favor. If you have paid your mortgage on time with an individual who holds the lien to your home, you should get credit on your credit report for it. Most individuals would be fairly baffled at your request to add a manual tradeline to your credit report, simply write the three credit bureaus and ask that they account be added and give your point of contact's name and phone number for verification. The bureaus will verify the information and have it added to your credit report. Repeat this process a few times a year to keep your information current.
* Secured Loans/Secured Credit Cards
These are types of tradelines that you have secured by putting up something as collateral, such as your vehicle or home. You can obtain a secured credit card by depositing a pre-determined amount of money in an account with the individual company. You can then use that credit card to charge up to that amount and your deposit guarantees the company of being repaid, even if you miss a payment. Secured accounts are a viable way to rebuild credit after a bankruptcy, as long as you pay on time.
* Utility Accounts
Do you pay your monthly utilities in full and on time? Then try to add them to your credit report. Utilities usually only find their way onto your report if you're behind in your payments. Paying these items faithfully each month should boost your credit record, but if your local utility companies don't actively report in to the credit bureaus via a tape system the firm may decline your request to add your history to your credit report. Most will comply and the benefit of having a positive tradeline on your credit report makes it well worth the try.
While there is really no substitute for paying your debts on time each month, it's good to know that there are ways to improve your credit report. The key is knowing what's in your report, and making sure it's kept accurate.
Both Jon A & Liz Roberts are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
Jon A has sinced written about articles on various topics from Home, Sports Car and Acid Reflux. Jon is a computer engineer with extensive experience in many areas. For more information about please visit his web site at. Jon A's top article generates over 40500 views. to your Favourites.
Liz Roberts has sinced written about articles on various topics from Debts Loans, Credit Cards and Apply for Credit Card. Liz Roberts is a loan consultant with and has been providing consumers and business owners with financing since 1989. Bad Credit? Join our mailing list. Liz Roberts's top article generates over 22200 views. to your Favourites.