Taking the Confusion Out of Credit Scores and Reports

Many things in your life can be affected by your credit score and your credit history. Everything from buying a car, renting an apartment, looking for a new house, or even dealing with an emergency will be impacted by how you’ve handled your credit in the past.  

When a creditor pulls your report, whatever is on that report will contribute to the amount of credit you can access, how much it will cost you, and how high your interest payments will be. Applying for too many credit cards at one time, failing to make payments on time (or at all), and filing bankruptcy, can restrict your access to credit when you need it. Additionally, negative marks can remain on your credit report for over six years – affecting you for years to come.  

Here are some things to keep in mind when it comes to managing your credit responsibly.  

The Factors That Influence Your Credit Score 

This important three-digit number will determine many things in your life. Generally, credit scores will range somewhere between 300 and 850 and the higher it is, the better. This number is based on your credit history and is considered a marker of your “creditworthiness.” Lenders look at this number to determine how risky it is to lend you credit and how likely you are to pay it back.  

Some common things that influence your credit score include: 

• Negative marks. Any derogatory marks on your credit report from late or delinquent payments will play into the lender’s decision to provide you credit as well as your credit score.  
• Payment history. Lenders will check to make sure that you make your payments on time. Additionally, they will look to see what kind of payments you make. If you just pay the minimum balance every time, a lender may see you as more of a risk than someone who pays larger chunks. Sometimes even their whole balance – all at once.  
• How many credit accounts you already have. Typically, if you have tons of open credit accounts, this can affect your credit score.  

• Credit history length. The length of time you’ve been using credit will contribute to your overall credit score.  
• How many inquiries you’ve had recently. Having many lenders look at your credit score – especially over a short amount of time – can take your score down several points.  

Your Credit Report 

Your credit report and your credit score are two different things. The credit report has your credit score on it, but it also has additional information such as your name, date of birth, employment status, address, and phone number. It gives a detailed snapshot of your credit accounts – both opened and closed. This is where potential lenders can see negative marks and other information such as your payment history and bankruptcy status.  

Managing Your Credit Score and Report 

Experian, TransUnion, and Equifax are the three major credit agencies. You can pull your own report for free once every year from each of these agencies. Additionally, companies are required to send you a report if you have been denied credit so that you can determine why. While many people think it counts against them if they check their own credit, that’s not true.  

There are times where mistakes are found on your credit report, so it’s important to make sure that these agencies have the correct information. If you do find something that’s incorrect on there, you can dispute the information. You can find information on each of these agencies’ websites telling you how to go about disputing incorrect information on your report. Once they have received your complaint, they legally only have 30 days to investigate the claim. If you haven’t heard back from them within this time frame, make sure to contact them again.  

Another way you can manage your credit score effectively is to make your payments on time. If you consistently make late payments or forget to pay your bill. This will show up on your credit report and can deter other lenders from providing you credit. It’s also a good idea to limit the amount of credit you apply for at once. While it may seem like a good idea to apply for several different cards in case you are denied by a couple, this can be a red flag for companies and they may choose not to give you access to credit as a result.  

How to Improve Your Credit Score 

If you find yourself in a situation where you need to repair your credit history. There are several things you can do to achieve a higher score. If you are late on any of your payments, the first step is to catch up so that your account is in good standing. It’s also a great idea to pay off as many credit cards as you can. Creditors assess the percentage of your available credit that is used up. That means if you have all of your credit cards maxed out, this can lead to a low credit score. It’s generally a good rule of thumb to only  utilize 30%-35%  of your total available credit. Not only will this help your credit score, but it actually will help if you have an expensive emergency that requires you to use more credit.  

Not everyone can pay down all of their cards all at once, however. If this is the case, it’s a good idea to just focus on paying down your credit cards as soon as possible. Remember not to close them once you have paid them off, however. This can cause your credit score to drop for several reasons. It can increase the percentage of credit that you’re utilizing relative to the amount available. Additionally, your length of credit history is determined by the oldest card you have open. It’s usually considered best practice to leave open the card you’ve had the longest, even if you aren’t using it.  

When it comes down to it, managing your credit report and credit score isn’t as difficult as it may seem. Knowing how to read your credit report and how to use credit cards responsibly will go a long way towards helping you achieve or keep a good credit score.