Credit Awareness

Understanding your credit score and being aware of the details of your credit report are essential elements to becoming an informed credit consumer. Your credit score is often the determining factor in your qualification for mortgages, car loans, credit cards and insurance and the subsequent interest rate assigned. Periodically reviewing your credit report and comparing your scores across credit reporting agencies will help you understand what information creditors are sharing about you and identify and repair any errors.

What makes up your score?
Your credit report is comprised of the following six basic credit categories that collectively build your credit score:

• Credit History - In order to have a credit score, you must first have a credit history. A credit history is built by obtaining credit accounts, such as credit cards or loans.

• Payment History - Individuals that have payment histories that do not include any past due bills or skipped payments are seen as less of a risk than those who miss payments or do not meet minimums. Creditors assume that if you have missed payments in the past, you will be likely to do so again.
   

• Bankruptcies - Bankruptcies definitely negatively affect your credit score and can remain on your credit report for 10 years. If you must declare bankruptcy, be aware that you will be under creditor scrutiny, have your financial background exposed and often still be subject to certain payments such as student loans and child support.

• Amount You Owe - Lenders will review your open lines of credit to determine not only how much you currently owe, but how much you could potentially owe. Excessive amounts of potential debt may hurt your score, but not as much as actual debt.

• Requests for New Credit - Your score may also be lowered if your report shows repeated attempts to open new credit cards or obtain new loans.

• Types of Credit - Creditors often view individuals that only acquire secured credit as riskier than those with mixed or unsecured credit.
   

Reviewing and Repairing Your Report
Ordering your credit report and score once a year is suggested to ensure that the correct information is being reported and guarantee you are aware of the details of the information that is being disseminated about you. In order to improve your credit score, you must make efforts to repair your credit report, from verifying that information is correct to understanding negative credit habits and changing them.

Although you may not remove negative information that is accurate, there are steps you can take to repair the damage and improve your score. You should pay off any outstanding balances so that creditors will update your report with the most current information. Further, the Fair Credit Reporting Act guarantees your right to provide a brief written statement of explanation in your report. Negative information will remain on your record for seven years, at which point it will be removed, with the exception of bankruptcies which remain for 10 years.

Unfortunately, the process is not flawless and errors do occur. Many times human error comes into play as typographical errors or misread handwritten applications are entered into the system. Even more frequently, errors occur when the consumer provides inaccurate or different information on various applications. The best method for preventing such errors is to be consistent with the name you use when applying for credit, always include any given suffixes to your name (such as junior), always provide the correct Social Security number and be sure to list your current address as well as previous addresses. If you do find inaccurate information in your report, you can provide a written request for an investigation to be made within 30 days, or you may contact the creditor in writing.