Get smart about your Credit Report
- info648672
- Jan 25, 2023
- 4 min read
Whether you’re starting to build your credit score or have had credit for years, understanding how credit reporting works can benefit your finances. Your credit report is a snapshot of your personal credit history, including loans, credit cards, payment history, and bankruptcies. Companies use this information to determine whether you qualify for their products and services, so it’s important to know how to manage and optimize your credit score.
How Credit Reporting Works
Your credit report is compiled by credit bureaus that track various aspects of your credit history. The major credit bureaus are Experian, Equifax. Additionally in the U.S., TransUnion, or CallCredit in the U.K. They collect information from lenders, banks, and credit card companies to create a credit report, which includes your credit score, payment history, and outstanding balances.
Your Credit Score
Whether you have good credit, no credit, or bad credit, your credit score will be affected by factors such as payment history, credit utilization, and length of credit history. This score is a three-digit number that can range from 300 to 850 (0 - 999 in the UK). The higher your credit score, the more attractive you are to prospective lenders and the easier it will be to borrow at cheaper rates.
Your credit score is based on 5 main factors:
Making on-time payments – being consistent with your payments and making payments on time.
Credit utilization – the amount of credit used compared to the total of your credit limits. Experts say that ideally you want to keep your utilization rate at or below 30% of the total amount of credit you have access to.
Credit history – the longer the length of time that you’ve held your credit products indicates your ability to manage it for the long term.
Diversification of credit products – having a good mix of revolving credit (like credit cards), instalment credit (like a car loan or a mortgage) and utility credit (like utility bills)
Credit enquiries – Each time a credit report is pulled it can cause your credit score to decrease
How to Build and Improve Your Credit
If you have no credit, or bad credit, it can be challenging to qualify for loans, credit cards, and other financial products. However, you can start building your credit by using a secured credit card, getting a co-signer, or becoming an authorized user on someone else’s credit card. Consistent on-time payments will help boost your credit score over time.
If you already have credit, there are several ways to improve your credit score. Paying your bills on time, keeping your credit utilization ratio low, and disputing any errors in your credit report can help raise your score. You can also consider opening a new credit account or increasing your credit limit.
How Your Credit Affects Your Finances
Your credit score can impact your financial future in many ways. A good credit score can help you qualify for lower interest rates on loans, credit cards, and mortgages. This translates to lower payments and a lower total cost of borrowing over time.
On the other hand, a bad credit score can result in higher interest rates, which means you’ll pay more in interest over the life of a loan or credit card. In some cases, you may even be denied credit altogether.
Staying on Top of Your Credit Score
It’s important to keep track of your credit score and credit report regularly. Each of the major credit bureaus collect information about your credit activity from public records as well as the companies that you are a client of. You can view your credit report for free once a year from each of the mentioned credit bureaus through AnnualCreditReport.com in the U.S. In the UK, you can access your statutory credit reports, per bureau for £2. It makes sense to request your report from each because the information hold about you may differ.
Free access to your credit score is available by registering online per bureau, or through various credit monitoring services, such as Credit Karma or MyFICO in the U.S.
Once you have your reports it is important to check the information such as:
your personal information - is your name spelled correctly? Is your address up to date?
are you accurately listed on the voter register? (Voter registration benefits your score in countries such as the UK)
are all the credit products that they have against your name correct – is there a risk that someone is taking out credit in your name?
are they reporting any of your accounts and balances inaccurately, or incorrectly claiming that you have late payments?
By monitoring your credit reports regularly, you can catch any errors or fraudulent activity early and take steps to correct them. You can also keep an eye on your credit score and make adjustments to improve it over time.
With these links to the main credit bureaus, you can request your credit reports, sign up to their free or paid-for services, and make contact if any information they have on your record is incorrect.
Building wealth not only involves acquiring value in your assets over time, but also ensuring that you are on top of your administration. Use your credit information to access the best financial services available and protect what you've already built towards growing your assets.
Understanding credit reporting and how it impacts your finances can be a powerful tool in securing a bright financial future. By keeping track of your credit report, building good credit habits, and being proactive about your score, you can qualify for better financial products and save money in the long run. Start by pulling your credit report and taking steps to improve your credit today.
