Too much debt can get you in a lot of trouble that impacts you when you want to get a business loan or even new merchant processor. Unfortunately, a lack of credit can hurt you in the same way. It’s important to practice habits of responsible credit use while working to keep your level of debt down. Your credit report is one very important tool for helping you accomplish this.
The Benefits of a Good Credit Score
One of the most common reasons people look up their credit report is to understand their credit rating. A great rating has several advantages. For example, you may notice improvements on most types of insurance, such as lower rates on key man, auto, and life insurance.
With a strong credit rating, insurers are likely to see you as low risk and if you want to compare car loans and are looking to buy a car then it will help you secure a better rate. Another benefit of having a good report is that getting a loan for your business or even lower rates on your merchant processor.
Factors That Affect Your Credit Score
There are three familiar credit reporting agencies: Equifax, Experian, and TransUnion. Although the agencies gather roughly the same type of information, there are important differences. The influence of each agency varies from location to location. They also use different calculation models to determine your credit score. This means that a score from Experian won’t necessarily match the score from TransUnion. In general, however, factors such as the amount of credit owed, the limit on open credit cards, the number of credit applications on your history, the number of late payments, and the amount of money you make all affect your score.
Access Your Free Report
If you understand how your score is calculated and know how to read the rest of your report, you can take steps to improve your score and your financial situation in general. For example, each of the credit reporting agencies offers services that help consumers improve how they manage their credit. The first step is accessing your report. A 2003 federal law requires that each of the three major credit bureaus provide you with a free annual credit report. You can request a report from one or all three credit agencies. With the report in hand, you’re ready to make improvements to your finances.
Recognize the Differences Between Reports
A consumer credit report from Experian is pretty easy to read. Each section is clearly labeled and comes with explanations of the information provided. If you request a copy from TransUnion, you can read through it with the help of an online, interactive guide that walks you through each section of the report.
Equifax organizes their report in groupings of open and closed accounts rather than in a monthly format. The Equifax format helps you quickly recognize old information versus new or current information. As you read through the reports, you may prefer one format over another. Employers and landlords may also have favorites. As you work on improving your credit, use all three to get as much information as you can and to watch for signs of identity theft.
Recognize the Similarities
The three agencies have many differences, but there are some important similarities, as well. Every bureau, for instance, gathers personal information including your name, date of birth, current address, and the name of your employer. They access account summaries from your creditors and read through public records to factor in any bankruptcies or judgments against you. They also obtain credit checks and inquiries from creditors. Although the agencies are searching for the same information, some lenders only share information with one or two of the agencies. As you read through your own reports, make sure you fill in any gaps.
Review the Report for Mistakes
It’s very important that you read through your reports, looking for mistakes, watching out for suspicious activity, and making sure your credit history is accurate.
- Review your personal information and make sure there aren’t mistakes or misspellings. If any of the information is incorrect, it won’t hurt your credit score, but you should correct it. Read this section to be sure the credit report is talking about you and not another person.
- Read through your credit summary. This section outlines the types of accounts you have (often listing current and closed accounts.) Make sure it accurately describes mortgages, credit cards, lines of credit, automobile loans, school loans, collection actions, and other miscellaneous accounts. It will also mention inquiries made against your credit for the past two years.
- Study the account history and make sure you recognize each creditor and type of account. You should see information about how much your monthly payment is, what the existing balance is, what the credit limit is, whether you have anything past due, and even remarks made by creditors.
For some consumers, getting a credit report card and reading through it is a strong motivation to make improvements.
Improve Your Credit
As you become familiar with your report and take advantages of available resources, the process of improving your score should seem pretty simple. One of the most important steps is to make all payments on time, especially your mortgage payments, and pay them in full. Next, begin reducing the amount of debt you owe. Finally, don’t apply for new credit cards or use existing accounts.
In today’s market, you need to have a credit history. Use reports from credit bureaus and online resources to make sure your history has a positive effect on your life. If your score isn’t where you want it to be, check out a credit report card that breaks down your debts and gives specific advice about how to improve your score.