Why you should check your Credit Report & Credit Score regularly
Just as a resume displays your work experience to a prospective employer, a credit report provides prospective creditors (and in some cases employers and insurers too) with a detailed picture of your credit history. And like a resume, your credit report can influence whether you will receive what you are applying for.
Ideally, your credit report is an accurate, up-to-date reflection of your credit history. However, since we don't live in an ideal world, there are many reasons that your credit report could contain inaccuracies that might prevent you from receiving the credit you deserve. The good news is you can take action to keep your report accurate.
Top 5 reasons to regularly review your credit report:
1. Inaccuracies & Mixed Credit Files
If you are considering applying for a loan, ordering a copy of your credit report may well be the best place to start.
Because it's also the first thing a potential creditor will be looking at, and even if you pay your bills on time, you will want to ensure that all the information in your credit file is up-to-date and accurate.
Studies have shown that many credit files contain inaccuracies that could affect your credit rating, and even lead to the rejection of a loan application. That's why reviewing your credit report beforehand may be a good idea, giving you time to dispute any items that may be the result of a simple human error or a technical glitch.
And depending on whether you are applying for an auto loan, a mortgage loan, or a loan for business or personal use, different lenders may apply different standards in rating your credit worthiness. For this reason, reading your credit report and understanding how your credit data might be interpreted may give you a chance to improve your credit worthiness from the point of view of a lender.
Many inaccuracies on a credit report can be the result of a simple human error, and are therefore not difficult to dispute. Of course, if you don't order your credit report, you might never know about it. Whether the inaccuracies relate to payments not credited, late payments, or data mixed in from the credit file of someone else with a name similar to yours, you will want to contact the credit bureau to dispute inaccurate information promptly.
2. Tracking Payments
One of the most important elements of credit is a demonstrated history of on time payments. Once you send the check though, anything can happen--a delay in the payment being received can kick you over to a 30-day delinquency. If you call your creditor and explain the situation, they might adjust the information. Of course, if you don't read your credit report, you won't necessarily know which payments are being received and reported properly.
3. Identity Theft
This issue alone is reason to order your credit report immediately. Identity theft is an insidious crime, involving a thief who assumes your name to open new accounts, divert your card statements to another address, and run up all sorts of bad debt without you ever knowing about it until collectors come calling. Over time, identity theft could jeopardize your ability to obtain further credit. The best way to catch a thief who is using your name is by getting a copy of your credit report, which will show you if there are accounts listed you know you haven't opened. For example, if a thief has intercepted a pre-approved credit card offer in your name and sent it in with a change of address, your credit report will include the account.
If you're shopping around for a loan or more credit, you should know that when creditors check your credit, it places an inquiry on your credit report. Inquiries can add up, which is often interpreted as a negative by creditors. For this reason, too many inquiries can actually make getting credit more difficult. Moreover, if you didn't authorize someone to look at your credit report and they did, they may have broken the law.
5. Credit Fraud & Unauthorized Charges
Credit fraud involves the theft of your credit card or account number to make unauthorized charges to your account. Though consumers are protected financially from this abuse, other creditors may take note of all this activity and decide to raise your interest rates or refuse to grant you a loan. Ordering your credit report will help you catch new activity on accounts that you haven't been using, or may have closed.
When it comes to managing your credit worthiness, your credit report is your best resource. Obtaining your credit report gives you the opportunity to manage your credit wisely today, while planning your credit strategy for achieving future goals.
Reasons to Check Your Credit Score:
Your Credit Score is a numerical representation of your credit risk on a scale very similar to those used by lenders. Your credit score is based on the information contained in your credit report.
Financial institutions often use credit scores to help determine your creditworthiness for credit card approvals, mortgage lending, setting insurance premiums, and much more. Your Credit Score is determined using many of the same factors considered by leading credit scoring companies. To better understand these factors, please see your Personalized Score Analysis. The higher your score, the better, since a higher score indicates you are less risky to lenders. By understanding your current level of credit risk, you will know what kinds of offers you can expect and avoid surprises when applying for a loan or credit card. By identifying the factors affecting your credit, you can learn to better manage your credit and get better loans.
Since there are 3 major credit bureaus in the US (Equifax, Experian, & Trans Union), you actually have 3 different credit reports. Each one is based on the information that lenders have reported to that individual bureau. In the same way, you have 3 different credit scores - each based on one of your credit reports. Because a lender can report your information to any of the bureaus (some lenders report to all 3 bureaus, while others may report to none or only 1), your credit report at each bureau often contains different information. If there are differences among your 3 credit reports, your 3 credit scores will reflect these differences, as well.
It is important to note that each of your credit scores will change over time, just as the information in each of your credit reports will change. In fact, your score can actually change from day to day, since it is based on the information in your credit report on the day your score is calculated. We recommend periodically checking your credit score, score analysis, and credit report in order to be aware of your total credit picture.
Different Ways to View Your Credit Score:
Your Credit Score is a three-digit number that represents your credit rating. Using a scale widely accepted by the lending industry, the majority of Personal Credit Scores are between 400 and 900. Higher scores are better.
We've also provided a different way to view your credit score. With a simple click, you can view your score on a scale of 0 to 100, similar to the type of scale used for many school scorecards. Once again, higher scores are better. This representation of Your Credit Score may be easier to understand because it uses a simpler scale. The difference between the two scales is like the difference between Celsius and Fahrenheit - they both measure the same thing only on different scales.
The Credit Category Rating provides an easy way for consumers to evaluate their credit and understand what types of loan terms (such as interest rate, credit line, fees, etc.) they can expect when applying for credit. This snapshot of a consumer's credit is based on general industry guidelines. Although each lender has different criteria, you will most likely receive the best loans and terms if you fall in the "Excellent" category. If you fall in the "Very Poor" or "Poor" categories, you will probably receive less favorable loans and terms.
The Percentile Value:
Your percentile ranking is computed using a distribution of Personal Credit Scores based on over one million credit reports and reflecting the natural distribution of the US population. This provides an easy way for you to compare your credit rating to the rest of the U.S. population's. For example, if you rank in the 90th percentile, your credit rating is higher than 89 percent of the U.S. population. The higher your percentile ranking is, the more likely you will be able to receive good loan terms.
Some statistics about the score distribution (percentiles):
- 15% of the US population is below 600
- 35% of the US population is below 670
- 50% of the US population is below 710
- 70% of the US population is below 755
- 90% of the US population is below 790
Your Credit Score is calculated using information from your credit report on the day it is calculated. It is based on over 80 factors grouped into 6 classes:
Payment history - Information about the way you paid your credit accounts in the past, including late payments and bankruptcies.
Credit accounts - The number of credit accounts that you have and the different types of those credit accounts (e.g. credit cards, auto loans, etc.).
Credit usage - The amount of credit you are using, and the amount of credit still available.
Length of credit history - The number of months your credit accounts have been on your credit report.
Credit applications - The number of times you have applied for credit in the recent past.
Bankruptcies - The presence and age of bankruptcy records (if any) on your credit report.
Note: To understand how long information stays on your credit report, please click here.
With many lenders using credit scoring as a significant part of their loan process, it is extremely important to know the reasons that make your score higher or lower. In fact, knowing the reasons behind your particular score is more important than knowing your score itself. This knowledge enables you to proactively manage your credit so you can get better loans.
The negative and positive factors listed on your Personal Score Report are based on actual data from YOUR credit report. By improving your negative areas and continuing your positive actions, you will be able to improve your credit rating.
Factors Not Used
Factors that are NOT used in calculating your Personal Credit Score include age, sex, and race. These factors are excluded from credit scoring to eliminate bias and discrimination from the decision process. Only the information from your credit report is used to calculate your credit score in your instant credit report.
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