Your credit scores are important if you want to do just about anything important. Once used mainly to determine creditworthiness, credit scores and reports have become easier to obtain through Internet technology, so more businesses use them to qualify you for services. These days, your credit rating can affect you ability to get affordable car insurance, cell-phone service, utilities for your home, a rental home and even a job.
Credit Score & Ratings
While polls show that most consumers understand what a credit rating is, few have a full understanding of factors affecting credit ratings. Some facts you may not know about credit scores and reports include:
- FICO scores include ratings from the three major credit bureaus, which are Equifax, Experian and TransUnion. FICO itself is not a credit bureau.
- Your credit score can fluctuate, changing as many as five times throughout the year.
- Your income level has no connection with your credit score.
- The lowest credit score is 300, the highest scores are 800 and above.
- 13% of consumers have credit scores of 800 or more
- The average credit rating is 720, while credit scores of 740 and above are the most beneficial.
According to Mike Fratantoni of the Mortgage Bankers association, "Credit scores are very powerful predictors of consumers' future [bill-paying] performance." They are not used to determine your ability to pay, but the likelihood you will pay your bills, based on your past performance. There are as many as 50 points of data included in a credit rating.
The various credit-reporting agencies use proprietary formulas and may get information from differing creditors. Because of this, some of your lines of credit and debts might not show up on every report. Depending on the line of credit, this can be a help or a detriment to your score. Checking your credit score with all three bureaus regularly is an important part of keeping a good credit rating.
Free Credit Report
Federal law gives you the right to get a copy of your credit report from each of the three major bureaus once each year. You can also get a free copy if you were denied credit, insurance or a job because of the information on your credit report, but you must ask within 60 days of the action. Other reasons to get a free report include being unemployed and planning to apply for a job within 60 days, being on welfare, or if your report has been affected by identity theft or fraud.
If you want to review your credit report more often, you will have to pay $10.50 to the credit reporting company for an additional copy of your report. You can contact the bureaus for credit bureau scores individually, but the easiest way to get your free credit report is by going to AnnualCreditReport.com or by calling 1-877-322-8228. To get your free credit score go to FreeCreditScore.com. The three bureaus cooperate through these services so you can get your reports from one convenient source.
Once you have your reports, review them for mistakes. Review each of the four sections, including your personally identifying information, credit history, public records and credit inquiries. Check to be sure that your personal information is correct and look over your credit history for accuracy. Don’t worry about variations in spelling or your SSN. As long as the correct information is there somewhere, you will be okay.
Credit Report Public Record
The public records section is the part of your report that can be the most damaging. This is where bankruptcies, judgments and tax liens are recorded. These items stay on your report for ten years, except for tax liens that stay on the report for 15 years. If the lien is paid, it will be taken off the repot after seven years.
The inquiries section of your report includes requests for your credit rating. A negative inquiry results when you are denied credit. Inquiries that you authorized are called "hard inquiries." Too many of these can be damaging. However, inquiries made within a short span of time, such as two weeks, are counted only as one inquiry. This makes it easier for consumers to shop around for a loan without hurting their credit. Inquiries remain on your report for two years.
If you find negative information that does not belong on your report, you should file a dispute with the rating bureau that reported it. For more information go to Rebuild Credit.
The Federal Trade Commission (FTC) offers detailed instructions on how to dispute information on your credit report. Go to http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre21.shtm and scroll down the page for step-by-step instructions. Be sure to follow the FTC’s advice and ask the credit reporting company to send notices of the corrections to any party that received a copy of your credit report in the last six months. You can also ask them to send a corrected copy to anyone who received a copy of your report for employment purposes in the last two years.
Those negative items that legitimately belong on your report will continue to affect your credit score for a total of seven years (not including public records). But in most cases, lenders just look at the last two years to assess your creditworthiness. While a single late payment on your report may make you nervous, it is no cause for concern. FICO scores look for trends in your behavior. A single incident should not harm your rating.