If you took a quick quiz on all things Credit how would you score? And why does it matter? You’d be surprised how many home buyers go to apply for a loan and get a surprise when their credit is pulled by the lender. Unpaid parking tickets and other disputes can come as a suprise at the wrong time. To prevent this, you should know what your score is, and a general overview of how it all works. Let’s refresh:
Credit
Credit history means you’ve had at least one open account for the last 6 months. The timeliness of paying your debt off determines your credit worthiness. Even if you have never had a credit card you stand to have excellent credit because of promptly paying loans and other bills. Having good credit allows you to get approved to take on more debt, including student loans, car loans, or a mortgage, and you’re likely to get lower interest rates. On the other hand you need at least one line of credit open to have any credit at all, and a bad credit score can eliminate your chance of loan approval. It can take years to rebuild your credit score.
Credit Score
This indicates how likely it is that you’ll pay your debt – a lender will use your credit score in determining whether to lend to you – for a home, car, whatever. FICO is the standard score, calculated by Fair Isaac Corporation. Your FICO score looks at all the information on your credit reports, including payment history, money you owe, length of your credit history, new credit, and the types of credit that you have used in the past.
Know Your Score
Free is good, but there’s a limit to what you’ll see for free from the 3 credit bureaus. It’s better to pay the $20 to get your score, because it will give you a more comprehensive understanding of your score. Here’s some detail:
<500 – 549: Bad credit
550 – 599: Poor credit
600 – 649: Fair/Average credit
650 – 749: Good credit
750+: Excellent credit
Credit Reports
Credit reports contain info lenders reported to Experian, Equifax, and TransUnion. Lenders report payment history, money you owe, the length of your credit history, new credit, and the types of credit. It reflects how you borrow money, which lenders use as a way to determine whether you’re currently lend-worthy. You can get your credit reports for free from the three reporting agencies once a year.
Analyzing Reports
Read your reports to thsee what has been reported, but also look for errors. If you have incorrect information on your credit report, you need to get it corrected. To do this, contact the appropriate credit bureau. The agency must investigate the dispute within 30 days of your request. Alternatively, you can write to the creditor disputing the incorrect entry. Negative entries stay on your report for 7 years. After 7 years, the negative entries should fall off. If you have negative entries on your credit report that are over 7 years old, you should request to have that information removed by contacting the agency reporting the information or by contacting the creditor.
Hopefully this helps clarify the overall Credit topic. It can be very confusing, but like anything else – with some reading and study – it becomes more clear.