Credit plays a significant role in your life, especially when you are ready to buy a home or make a major purchase. Understanding what credit is and how it works may seem daunting, but it will be worth the effort. The first place to start is to learn the basics about credit scores and credit reports.
Lenders use credit scores to determine how likely you will be to repay a loan and to evaluate your use of revolving credit. Each credit report will have credit scores from one or more credit agencies unless you have insufficient or no credit.
Ranging from 300 (high risk) to 850 (low risk), your score looks at both positive and negative information in your credit history. Late payments, charge off accounts, collections and even high balance credit cards can lower your score. Conversely maintaining a good record of making payments on time and using credit conservatively will raise your score.
Although each credit agency may report information slightly differently, but all credit reports contain the following: your Social Security number, date of birth and employment information. These items help identify you, but have no impact on credit scoring.
Credit reports also contain information on your individual credit accounts, inquiries and public records and collection accounts. Lenders report information on your accounts, such as what type of account it is, the date the account was opened, the credit limit or original loan amount, the balance owing, and any additional credit available and your payment history.
When you apply for credit, the lender will request a copy of your credit report. The report will show credit inquiries from other lenders or entities. Voluntary requests are your own requests for credit, and involuntary requests are when others order your report to make pre-approved offers, offer you an insurance quote or an existing creditor needs to check up on your credit report.
Each report contains a section showing public record information, items like bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments.
When shopping for a mortgage or an auto loan you may allow multiple lenders to check your credit even though you are only seeking one loan. For your protection, the scoring model will generally count multiple auto or mortgage inquiries in a short amount of time as just one inquiry. So it is important to only permit lenders to check your credit when you are a serious buyer, or plan to make a purchase in the near future.
Consumers should keep a close watch on their credit reports to ensure that information is being accurately reported and to ensure that another party has not erroneously used your information to obtain credit. There are many for-profit agencies that will monitor activity for you, but it is important to know that each consumer is entitled to a free credit report every year from each of the three credit bureaus.
But, one need not pay to have credit monitored because the United States government requires a free credit report to every consumer each year from each of the three credit agencies:Equifax, TransUnion and Experian. But your credit score will not be provided unless you specifically request it and there may be a small fee.
Consumers can obtain their free credit report at www.AnnualCreditReport.com or by calling 877-322-8228 or by completing the Annual Credit Report Request Form [backlink is http://www.consumer.ftc.gov/articles/pdf-0093-annual-report-request-form.pdf ] and mailing it to the following address:
Annual Credit Report Request Service P. O. Box 105281
Atlanta, GA 30348-5281
If you would like to discuss mortgages or learn more about how they may affect your credit reports, please contact me at email@example.com.