Your credit report

Your credit report and score are all the rage nowadays. Your credit report is checked when you open a bank account, line of credit, get a mortgage, apply for car insurance or even get a lease for an apartment. Most banks only know you by a number now, and that number is your credit score. There are plenty of people touting their own credit report business on TV and radio the past few years, all of them trying to scare you into getting one or make you think that you can save thousands of dollars by going to their site and paying for a service. Poppycock. Well, not totally, but most of it has nothing to do with the average consumer. Most people turn 18, get a few credit cards, maybe an auto loan and then struggle with their debts until they get a mortgage later in life and then the eventual consolidation loan or second mortgage, which they have so cleverly marketed as a “home equity loan”. So I’ll go a bit into how to get your credit report and what it means to you.

First you need to get your hands on the pesky thing. You can do that by going to Google, searching for credit report and clicking on pretty much any link that you see come up. Don’t do that. Instead, go to Annual credit report.com and get it for free, without having to sign up for any services. The Government mandates that every citizen over 18 be entitled to a free report once every year, to help protect them from identity theft. So go there, and no where else. Even at that site, there are always going to be advertisements to try to get you to sign up to monthly monitoring services ,you don’t need that for any reason, ever. No one does. Check it once a year for free and look for discrepancies and you should be safe for the most part.

Once you have your hands on the report, it will show you a few pages of information. Since I’m not looking at my report right now, I’ll not go into extreme detail, but most of it is self explanatory. You have a page showing all of your debts, past and present, with a total of how much you owe them, what your limits are and lists of the highest your balances have been for each account in relation to the limits.
It will also show a time line under each each account for the past three years, showing weather you have had any late or missed payments on the account in question. The reason they go back three years on the list, is because most creditors look back that far. If you clear your credit for that amount of time your in good shape.
The one thing you will notice is missing is your credit score. The score is of no value in protecting you from identity theft, so they don’t have to give you that information for free. If you want it, you have to sign up for the service, which I don’t recommend doing. If you do sign up, be sure to cancel it before the end of the following month, so you don’t get charged undue fees. The average score is generally around 650, with anything above 800 being near perfect and below 600 being pretty bad (although it is rated as fair).

HOW TO RAISE YOUR SCORE

As you can imagine if you are a regular here, there is no magic fix. Anyone who says they can help you is lying with the exception of a few non profit organizations. Even they can’t do much for you, because the report is based entirely on what the company you were indebted to decides to report to the credit bureaus. There are however some simple things you can do to slowly but surley raise your score.

One- Pay everything on time, always. There is no excuse to give a creditor for why your bills are late. Pay on time, every time.

Two- Keep zero balances on credit accounts. Holding a zero balance on cards will help you immensely when it comes to your score. It shows creditors that you can control yourself with regards to money. It shows responsibility, and overall that’s what they want, responsible debts.

Three- Opt out. When you get all those offers for credit in the mail, look at the bottom and use the opt out feature. You don’t need that new card, and it certainly doesn’t help your credit to have people looking at your report 24/7.

Four- Stop applying for credit. The more often you apply for credit, the lower your score. Every time you apply for anything, your score drops about 6 points just for asking. It also looks bad to any potential lenders if your looking to take on a lot of debt suddenly. That doesn’t make them want to jump on the lending train any faster.

Five- Have a higher income. Most of the time it’s out of your hands, but the more you make, the more they are willing to lend. there are equations that are used to determine the amount of debt a person can handle. The larger your income, the larger the assumed ability to pay back debt.

Always be aware of your credit. Check it once a year at least signs of identity theft. You should be aware of how every decision you make affects your score and report and make responsible decisions at every turn. As always, if you are unsure Ask someone. better to feel foolish than be foolish.

Here is a short movie from an “expert” that explains the FICOscore.

-Jared