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Understanding Your Credit Report
May 25, 2020

Understanding Your Credit Report

No person who likes to think about his or her credit statement. Even if you’re completely sure that your score is in good standing, asking for your annual credit report can be a stressful activity. Imagine if you’re wrong. Perhaps, all along, you didn’t put your documents in the first place of importance.

If you’ve never requested your credit statement before, the stress can be even worse. Many people don’t know how to read credit score reports and don’t recognize if they’re ruining their credit score by requesting it.

If that sounds like you, just relax. Researching your report is no big deal, and learning it isn’t too hard either. Take eight minutes to read this article, and you will be ready to analyze your credit report.

Understanding Your Credit Report

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Common Myths about Credit Reports

Credit is a complicated and complex issue; therefore, it is easy to get confused. We’re here to clarify it.

1. Your Salary Is Factored into Your Credit Score

Making more bucks won’t send your credit standing rising. On the other side, if you lose your job or get low payments, your score will not take a beating either. Well, at least not straight away.

Your income is not directly stated to the three leading credit agencies Experian, Equifax, and TransUnion. These are the words said by Wayne Sanford. This credit advisor has examined more than 11,000 customer credit profiles, and he is an author of “The Real World on Credit.”

“But if you don’t have enough money to pay your bills on time monthly, your rating could wind up taking a hit. Late or missed payments related to the three credit bureaus,” he said.

So, the size of your paycheck cannot impact your score.

2. If Collection Companies Keep Selling Your Debt, It Will Stay on Your Credit Report Forever

This popular urban legend is also confusing. By law, a collection account can only stay fixed to your credit statement for seven years, from the last actual date from the original lender.

“It’s incorrect that there are seven years from the day of first collection attempt,” stated Bill Druliner, a GreenPath Debt Solutions group supervisor in Milwaukee, Wisconsin.

Moreover, this expert left a bit of advice. It would be best if you analyze your credit report periodically to guarantee collection accounts drop off your credit report on time.

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3. Reviewing Your Credit History Frequently Lowers Your Credit Score

In some cases, a flurry of potential creditors checking your credit score might cause the rating to fall. But, there is an understanding credit report as the thing with no impact on credit score. Considering your credit report every day will not make a difference in your credit score.

Though, the credit agencies understand a customer might shop around for the best mortgage or car loan rate. So, if your history is revised several times within 30 days, those requests are typically grouped as one “pull” to lessen the impact on a credit score.

Anatomy of The Credit Report

You probably understand that your score helps to decide whether you get accepted for a loan or credit cards, and at what rates you pass. The better your score, the better your chances of getting assets with agreeable terms.

But the components that factor into your score may seem a bit fuzzy. Credit standings are based on the information in your credit history, which are supported by three major U.S. credit reporting bureaus – Experian, Equifax, and TransUnion. Here’s a breakdown of a FICO system, the most commonly used system for credit scores today, and ballpark rates for how much each part counts toward your total score.

  • Payment History, 35%. This piece of your score depends on how well you handle your bills. Delayed payments, suits, charges, bankruptcy, wage seizures, and collection details all count against you. One of the biggest things on the way to gain a good credit score is simple: pay your bills on time.
  • Amounts Owed, 30%. The amount you owe on credit cards and to lenders. Another thing is the proportion of those amounts to available loans, are recognized. To grow your score, pay down your credits, and keep your credit card bills less than 30% of your limits. It will help in understanding your credit report now.
  • Length of Credit History, 15%. The age of your accounts and the period after the last activity are considered. If you need to close credit card accounts, close the most current first, and don’t get a bunch of new ones. That reduces the average account age.
  • New Credit, 10%. This part of your score notes the number of credit requests, the amount of recently opened accounts, the period since they opened, and the recovery of positive credit history after past debt problems. Inquiries from possible creditors count against you, but your requests for reviewing credit reports do not impact your score.
  • Types of Credit Used, 10%. The amount of different types of accounts is considered. Keeping a good payment history for various types of credit improves your score.

Fair Isaac Corporation, the senior developer of the FICO score, says it is difficult to say precisely how much one factor is weighted. These rates are an average for the overall population.

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Examining Your Credit Report

Now that you better understand your credit history as a concept, let’s dive into how to analyze annual credit reports, spot errors, and improve your credit score. There are nine essential tips here.

Access Your Credit Report via Annualcreditreport.Com

1While there are many various organizations out there that declare they want to give you access to your credit history, there’s only one approved merchant: AnnualCreditReport.com. All U.S. citizens can take a free credit report once each year from each principal bureau. AnnualCreditReport.com can make sure you receive it as quickly as possible. Some people might think “is annual credit report.com safe,” but it’s the only state-licensed service.

Check Identifying Information for Accuracy

2As we mentioned above, the identifying information section of your credit history is likely to have some small problems. E.g., misspelling of your name. While little slips probably aren’t big trouble, apparent errors and more significant issues might be alerted for identity theft. They should be considered as soon as possible.

Review Any Facts of Fraud

3Under your name and place of living, you should be able to find any fraud alerts connected with your account. These facts list any particular incidents of fraud or identity theft. If you’ve ever participated in an event like that, you should see it here. If you see reported incidents that you are not already aware of, you should learn the “how do I read my credit report” thing and investigate them.

Know and Understand Your Credit Score

4Next, look at your credit score. Your rating will vary between the different credit bureaus, but each should be relatively similar. If they are not, something is probably wrong. Commonly, credit scores break down like this:

  • 300-629: Bad
  • 630-689: Fair
  • 690-719: Good
  • 720 and up: Excellent

No matter where your credit score is, you should understand how it got there. Significant factors include your payment history, your total debts, and the length of your credit history. Only by understanding my credit report factors, can you figure out how to improve your score.

Fortunately, your credit report should also cover notes next to your standings that explain which parts have most affected it. Consider these notes as hints from the credit bureaus to help you to increase your score.

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Examine the “Public Records” Part

5The hope is that you will not have any open documents listed here, including bankruptcies, verdicts, or tax liens. If you do, double-check to make sure that the information included in this section is accurate. If you repaid a loan and it’s still listed on your statement, then it’s again damaging your score and should be disputed as soon as possible. It will help in understanding a credit report for the long term.

Review All Requests

6The requests section can be interesting for the average customer. Here, you can see a record of everyone who’s reviewed your score. Every time someone offers an inquiry, hard or soft, it shows up on your customer-facing report. These complete records can help you get a better sense of which companies actually care about your credit history. It is useful information to learn.

Measure Your Debt-To-Income Proportion

7Your debt-to-income ratio is a numerical character of how much of your paycheck goes to paying off debt monthly. Since your credit history lists all of your arrears in one report, it makes assessing your debt-to-income ratio completely easy.

To calculate, simply divide your entire monthly fees by your monthly earnings and multiply by 100. If you pay at least $500 in debt returns and receive a salary of $2,000 per month, then your debt-to-income proportion is 25%.

It would be best if your debt-to-income ratio is kept to under 40%. Anything more than that may be an alert to creditors, who’ll assume that you’re riskier to lend to. The reason is that you’re under so much financial pressure already.

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Dispute Any Mistakes You Find

8If there are any flaws or outright errors on your credit report, then it is up to you to know how do you read a credit report and dispute them. Sadly, even though they’re not your mistake, no one else is going to go through the trouble of fixing it.

The process for discussing your credit report varies depending on the bureau that provided the history. Equifax, Experian, and TransUnion – all have their forms and methods, and you’ll need to take up your dispute straight with them.

Usually, the process goes like this: you find your way to the bureau’s online form. For ease of use, the credit statement may list the Web address for the style. Fill out the form, and you will kick off an investigative manner within the credit agency.

It will probably take between 30 and 45 days. It entails the bureau contacting your creditors and checking up on whatever details you are disputing. During this period, the item in question should be listed as “disputed” on your statement.

If the agency decides that you are right, it will correct or remove the disputed item from your report. If it differs and you feel like your dispute was not supervised correctly, you will still have support through the Consumer Financial Protection Bureau. This company will help to take the debate further.

Create a Strategy to Increase Your Score

9Unless you are at 750 or even higher, your credit rating probably has room for development. While there’s no way to increase your credit standings in one night, it is not that tough to do over some time. You need to repay your bills on time, pay down your debts aggressively, and avoid opening new lines of credit. At this time, you should be on track to increasing your rating as well as your total financial future.

If you need some help in getting rid of your arrears, DebtQuest USA is here for you. We help everyone with severe debt problems to start moving in the right direction and become debt-free. Contact us now to go over your debt management options and figure out the best way to move forward.

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