Why you need a Good Credit Report
Understanding your credit report and a good credit score is not only one of the keys to preventing identity theft and fraud it’s also your pathway to financial freedom.
Having a high credit score is important because you’ll typically get the lowest interest rate offered by lenders.
What is a good credit report?
Your credit report is a document that contains information about the types of credit you have. It includes your credit cards, mortgages, student loans, department store cards and auto loans.
It shows balances, dates of closed accounts and your payment history, including late or unpaid payments.
Three major U.S. credit bureaus are Equifax, Experian and TransUnion–keep track of all this data.
There’s a free way to obtain your credit report from them but federal law allows you to get a free report from each once a year at www.annualcreditreport.com.
The free report does not include all the information a lender would see, such as your FICO score. You can purchase a more-detailed report at the same site.
Sections of the Credit Report
There are four sections of a credit report. The first contains your personal identification, including your name, former names or aliases and past addresses.
The second section is known as your trade lines, and it contains your credit history. This includes creditors, original and current balances, payments and account status such as whether an account is in dispute or in collection. Public records are the third section. It contains any public records tied to your credit history, including foreclosures, bankruptcies, judgments and liens.
The final section, inquiries, lists the companies that have accessed your credit report. Inquiries generated from an application or transaction are known as “hard” inquiries, while reports requested by you or by creditors checking for pre-approval offers are known as “soft” inquiries.
Your credit report usually includes your credit score, a number generated by each credit bureau that indicates your credit risk.
This score ranges from 300 to 850. The higher your score the easier it is to get credit and receive lower interest rates.
If you discover an error in your credit report, you can dispute it with the bureau. Doing so promptly will help avoid having a loan or credit denied due to wrong information on your report. You may send a letter to the bureau or fill in an online dispute form.
Credit bureaus have 30 days to investigate your claim, and must delete the disputed information if they cannot validate it. If they deny your dispute, you can add a 100-word statement to your report to tell your side of the story to potential lenders and creditors.
To improve your credit score ranges, follow these tips:
- Avoid excess credit applications:
Your score decreases every time you apply for credit
because it may be a sign you need to rely on credit to pay bills.
- Keep old accounts active: A long credit history with the same accounts indicates stability.
- Pay down debts:
A large debt load lowers your score.
- Avoid more debt:
Don’t charge more than you can pay off.
- Pay bills on time: Strive to never make a payment late.
- Pay off collection accounts: Pay off any collection accounts on your credit report.