October 27, 2016

Credit Monitoring: Credit Scores & Report

About Your Credit Report & What You Should Know

fico_scoreCredit reports consist of the financial history from paying your bills to loans, current debts, and other information.  These reports also show your work history, where you live, and whether you have been arrested, filed for bankruptcy, or if you have ever been sued.

Lenders use credit reports to decide whether to approve a credit request or loan and what will be the interest rate on a loan.  In some cases, prospective employees, property owners, and insurers will access your credit report.

You’ve heard it before but it is really important that you check your credit report regularly.  Doing so will make sure all the information is correct and your financial accounts are accurately reported.  You will also see if there are any fraudulent accounts attached to your record or have been open under your name.  If you find errors, you need to take steps to have these issues corrected.

Free Credit Reports:

You are allowed to get a free report from each of the three reporting agencies once every 12 months.  You can request all three reports at the same time or break them up over the year.

The Credit Report Agencies Are:

These three agencies issue credit reports to creditors, insurers, and other businesses as permitted by law.

There are several credit reports that you can sign up for and check your credit whenever you want.  Just be aware, many offer a 30 or 40 free trial and then charge your credit card for a certain period of time.  Credit Karma is ALWAYS Free and can be a good choice.  They are always pulling information from the three agencies and will even send you reminders to check your report.

Credit Reporting:

Literally, tens of thousands of credit reports from retailers, credit card companies, banks, financial institutions and credit unions (to name a few) send updates to each one of the credit agencies once a month.  The updates include information regarding the customers and how they are paying on their accounts.

What Is A FICO Score?

FICO was first introduced in 1989 and was called Fair, Isaac, and Company.  FICO is used by the majority of banks and credit providers and it’s based on the consumer credit files of the three credit agencies (listed above).  Because your credit file may have different information from each agency, FICO scores can vary, depending on which agency provides information to FICO to generate the score.

Credit scores are designed to measure the risk by default by taking various factors into consideration. The exact formula used to calculate scores is not open to the public, here are the major five components that FICO has disclosed:

Payment History – 35%:

This area reveals the lack of or presence of negative information including bankruptcies, liens, settlements, charge-offs, repossessions, foreclosures, judgments or late payments that can cause your FICO to drop.

Debt Burden – 30%:

This can consist of a number of debts including credit card debt but there is a margin that is usually misreported.  This area covers the debt to limit ratio, the number of accounts with balances, amounts paid down on loans and other kinds of accounts.

The Length Of Your Credit History – 15%:

This can have a positive impact on your FICO score as your credit history gets older.  It bounces against the average of your account and the age of your oldest account.

Credit Used For – 10%:

Such as mortgages, installments loans, and consumer finance.

Recent Searches For Your Credit Inquiries– 10%:

This can have an impact on your score but not as much as some will have you think.  In many cases if someone is looking for a mortgage loan for a house, an auto loan, or student loan; there is a period of time to finish your searches which normally is between 14 to 45 days and will not have an impact.  Also, these inquiries will not count on your FICO if less than 30 days old.  Soft inquiries are when an employer is looking for employee verification, by yourself to check your score or insurance companies – they do not impact your credit score whatsoever.

credit_score_affect

What Is NextGen Risk Score?

NextGen Score was created by the FICO company to gain access to a consumer’s credit risk.  This was first introduced in 2001 and then again in 2003.  In 2004, FICO research revealed a 4.4% increase in the number of accounts above the cutoff line and also a decrease in the number of  bankruptcy accounts in comparison to FICO’s traditional reporting.

How To Obtain & Correct Your Credit Reports:

Your credit report is put together when you request it.  It should give you all the information that has been supplied by lenders, court orders or by your inquiries.

To obtain your credit report, you must provide your name, address, Social Security number and your date of birth.  If you have moved in the last 2 years, you should provide your previous address as well.  In order to protect and secure your personal information, you may be asked several questions that only you would know – i.e. your grandmother’s maiden name.

If you go online, you can obtain important information to understand your rights and what to do if you have an issue regarding your report.  Usually, if you contact the three agencies they will have you fill out a form, listing the information in question.  They will look into it and if it’s false, they will remove it.

Faults:

Credit scores are largely used because they are usually dependable and inexpensive. That said they have their flaws as well  because a certain portion of your FICO score is decided by the ratio of credit used to credit available on a credit card.  A score can be increased by increasing the credit spending limits on a particular card.

Read Online Or Download Documents:

Your rights under the Fair Credit Reporting Act (FCRA)

Your rights to correct errors from credit bills and EFT accounts

Check your credit reports and rating on a regular basis.  You want to be sure that all information is accurate.  If there are errors, you can quickly see mistakes and dispute them, it’s your right.

 

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