Understanding Your Credit Report

Learn More About Your Credit Report And What It Means To You.

Understanding Your Credit Report and Credit History
School report cards contain numbers or letters summarizing and evaluating students’ performance. As they get older, these report cards may be used to help determine students’ eligibility and acceptance into colleges or other programs.
Your relationship with your Equifax credit report isn’t much different. It tells a detailed story about you, and includes information about your financial accounts, and your payment history. Those who can access this information, including third parties with “permissible purpose”, may accept or deny your applications for credit based in part on the information in your credit reports, as well as their own lending criteria. With your permission, potential employers and landlords may access your credit reports. Simply stated, your credit report is made up of:
Personal information such as your full name, address, etc.
Account information from lenders and creditors who report it to the three major credit bureaus

Debts you have failed to pay, or accounts turned over to a collection agency
Why Credit Report Inquiries Are Important
Inquiries on credit reports show which third parties have asked to check out your credit report and when their request was made.  When a lender or company makes this request, it is recorded as a “hard inquiry,” and it may impact your credit score.
Examples of “soft inquiries” would include checking your own credit or when a company checks your credit report to prescreen you for unsolicited offers such as credit cards or insurance. These do not impact your credit score.
It’s important to know that checking your credit report regularly is not a “hard” inquiry and will not impact your credit score. In fact, familiarizing yourself with the information in your credit report can help you more closely monitor your other financial accounts. Being able to recognize inaccurate or incomplete information or suspicious inquiries may also help you detect an early warning sign of potential identity theft.

Do Your Credit Homework

The more you know about your financial accounts and credit history before making a big decision like buying a house or a car, the more prepared you will be to take on the financial obligations that may happen as a result. Here are some things to consider as you take steps to proactively plan your finances:
 Check your credit reports and credit scores before getting quotes to understand what information potential lenders and creditors are evaluating. (You can get one free annual credit report from Equifax, Experian and TransUnion at www.annualcreditreport.com.)
 When shopping around for a loan, consider: if you apply for a loan with different lenders to see different interest rates they can offer you, the inquiries may impact your credit score.
How Are Credit Scores Calculated?
Many people are surprised to find out they don’t have just one credit score. Credit scores will vary for several reasons, including the company providing the score, the data on which the score is based, and the method of calculating the score.
Credit scores provided by the three major credit bureaus — Equifax, Experian and TransUnion — may also vary because not all lenders and creditors report information to all three major credit bureaus. While many do, others may report to two, one or none at all. In addition, the credit scoring models among the three major credit bureaus are different, as well as those used by other companies that provide credit scores, such as FICO or VantageScore.
The types of credit scores used by lenders and creditors may vary based on their industry. For example, if you’re buying a car, an auto lender might use a credit score that places more emphasis on your payment history when it comes to auto loans. In addition, lenders may also use a blended credit score from the three major credit bureaus.
In general, here are the factors considered in credit scoring calculations. Depending on the scoring model used, the weight each factor carries as far as impacting a credit score may vary.

  • The number of accounts you have
  • The types of accounts
  • Your used credit vs. your available credit
  • The length of your credit history
  • Your payment history

Here is a general breakdown of the factors credit scoring models consider, keeping in mind there are many different credit scoring models.

Payment history

When a lender or creditor looks at your credit report, a key question they are trying to answer is, “If I extend this person credit, will they pay it back on time?” One of the things they will take into consideration is your payment history – how you’ve repaid your credit in the past. Your payment history may include credit cards, retail department store accounts, installment loans, auto loans, student loans, finance company accounts, home equity loans and mortgage loans.
Payment history will also show a lender or creditor details on late or missed payments, bankruptcies, and collection information. Credit scoring models generally look at how late your payments were, how much was owed, and how recently and how often you missed a payment. Your credit history  will also detail how many of your credit accounts have been delinquent in relation to all of your accounts on file. So, if you have 10 credit accounts, and you’ve had a late payment on 5 of those accounts, that ratio may impact credit scores.
Your payment history also includes details on bankruptcies, foreclosures, wage attachments and any accounts that have been reported to collection agencies.
Generally speaking, credit scoring models will consider all of this information, which is why the payment history section may have a big impact in determining some credit scores.

Used credit vs. available credit

Another factor lenders and creditors are looking at is how much of your available credit – the “credit limit” – you are using. Lenders and creditors like to see that you are responsibly able to use credit and pay it off, regularly. If you have a mix of credit accounts that are “maxed out” or at their limit, that may impact credit scores.

Type of credit used

Credit score calculations may also consider the different types of credit accounts you have, including revolving debt (such as credit cards) and installment loans (such as mortgages, home equity loans, auto loans, student loans and personal loans).
Another factor is how many of each type of account you have. Lenders and creditors like to see that you’re able to manage multiple accounts of different types and credit scoring models may reflect this.
New credit

Credit score calculations may also consider how many new credit accounts you have opened recently. New accounts may impact the length of your credit history.
Length of credit history

This section of your credit history details how long different credit accounts have been active. Credit score calculations may consider both how long your oldest and most recent accounts have been open. Generally speaking, creditors like to see that you have a history of responsibly paying off your credit accounts.
Hard inquiries

“Hard inquiries” occur when lenders and creditors check your credit in response to a credit application. A large number of hard inquiries can impact your credit score. However, if you are shopping for a new auto or mortgage loan or a new utility provider, the multiple inquiries are generally counted as one inquiry for a given period of time. That period of time may vary depending on the credit scoring model, but it’s typically from 14 to 45 days.
Credit score calculations do not consider requests a creditor has made for your credit report for a preapproved credit offer, or periodic reviews of your credit report by lenders and creditors you have an existing account with. Checking your own credit also doesn’t affect credit scores. These are known as “soft inquiries.”

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