|
|
As much talk as there is on GetPreQualified.com and elsewhere about the importance of building and maintaining a good credit score, there seems to be a lot of confusion as to what a credit score actually is. It is like this: Each of the three major credit reporting agencies (CRAs) -- Equifax, Experian, and TransUnion -- collect information about you and your financial history and provides a summary of that information in your credit report. The information that they collect includes:
• Personal information. Your name -- and any names you’ve used in the past; your Social Security number; current and past addresses; birth date; and employment information.
• Credit history. Current and past status of any and all credit lines, loans, or student loans in your name, including banks, retailers, credit card issuers, Internet or cell phone service providers, and other lenders. This includes accounts that you co-signed.
• Inquiries. This comes as a surprise to lots of folks, but it includes records of everyone who’s accessed your credit report in the last two years. This would include lenders you have applied to for loans and those who have merely requested your file to offer you pre-approved credit. You know the offers you get in the mail? It’s those folks.
• Information in the public record. Mostly the bad stuff; tax liens, bankruptcies, and monetary judgments not in your favor. It is important to know that, while most of the negative information on your report is dropped after seven years, a bankruptcy may stay on your report for ten years.
Anyone with a legitimate business need can actually request a copy of your credit report -- including lenders, landlords, potential employers (or current employers, for that matter), and government agencies. Since your credit report is used in so many different applications, it’s imperative to make sure your financial history is accurately represented. Check each of your reports for accuracy at least once a year. It’s also wise to request copies a few months before you purchase a new house or car, or apply for a job.
A 2004 law called the Fair and Accurate Credit Transactions Act makes it easier than ever to obtain copies of your credit report. Everyone in the U.S. can request a free annual credit report from each of the major credit bureaus. (See GetPreQualified.com’s section on get free credit report to find out how to get yours.) It is a good idea to stagger getting your three free reports throughout the year so that you can keep a watchful eye on your credit all year.
The aforementioned credit bureaus assign you a credit score (you knew I was getting to it, right?) based on your credit report. It will be a number from 300 to 850, and it reflects the risk you pose to potential lenders. Lots of lenders prefer credit scores to credit reports, and it’s easy to see why -- they reduce a lot of complex information down to a single figure.
Every lender decides what an acceptable score is; there is no single cut-off for receiving credit or a good rate. Generally speaking, the lowest interest rates go to people with the highest scores. The top 20% of credit reports receive scores over 780. For many First Time Home Buyer programs you are required to have credit scores of 620 or better. (Note: Though you can get free annual copies of your credit report, you’ll have to pay a little to see your score.)
Josh Michaels is a freelance writer who survives on very little income and carefully considered financial decisions. This combination has allowed him to have fun, travel the world, and start a retirement account – all without the pleasure of holding a full-time job. He can be reached at: joshmichaelsmoney@hotmail.com
|
|
