I asked what topics the readers were most interested in and I heard the suggestions loud and clear! So look forward to more posts regarding credit, saving, investing and traveling for less! To kick things off, this post lays the foundations of credit: what information is included in your credit report and how that information affects your credit score.
Each person has more than one credit report. There are various credit reporting agencies in the United States like Experian, Equifax and TransUnion and each reporting agency has its own credit report. The credit reports from each agency may differ some; however, there are four main categories on all of the reports. The four main categories are Personal Information, Trade Lines, Credit Inquires, and Public Record and Collections.
This section includes the basic information used to identify you like your name, address, Social Security number, date of birth and employment. The information in this section is not used to calculate your credit score; however, it is important to verify this section to ensure all the information listed is actually yours.
The trade lines section includes your different credit accounts. For example, your auto loan, mortgage loan, credit cards, and student loans would be listed in this section. Lenders report on each account you have. This section includes the type of account, the date the account was opened, your credit limit or loan amount, the current account balance and your payment history.
The credit inquiry section lists everyone that has accessed your credit report within the last two years. When you apply for a loan, you authorize each lender to obtain a copy of your credit report. The name of the company that accessed your credit report along with the date of inquiry is listed in this section.
Public Record and Collections
The public record and collections section includes information from state and county courts as well as information on overdue debts from collection agencies. Information found in this section includes bankruptcies, foreclosures, wage garnishments, and student loans in default.
Now that you know what sections are included in your credit report, let’s take a look at the weight of those sections on your credit report. The following 5 categorizes are included in the credit score calculation: payment history, debt amounts, length of credit history, New Credit, and Credit Mix.
Payment History 35%
The payment history section is pretty self-explanatory. It shows if your account is current or past due. If the account is past due, there typically is additional information showing how past due the account is.
Amounts Owed 30%
The amounts owed section of your credit report shows outstanding amounts of debts owed. Having a large amount of debt outstanding isn’t necessarily a bad thing. The most important thing is that your credit utilization is low. When a high percentage of a person’s credit is being used, it can indicate that a person is overextended and unable to pay their existing debt. Ideally, your credit utilization should be under 30%. For example, if you have a credit card for $1000, you should only use $300 or less of the credit to keep your utilization under 30%.
Length of Credit History 15%
The longer length of credit history the better. It shows potential creditors how long you have had access to credit. The length of your credit history is the average of all of the credit accounts you have open.
New Credit 10%
The new credit section shows how many new credit accounts you have. It can look negatively if you are opening a lot of new credit accounts quickly. Keep this in mind as you prepare to qualify for an auto or mortgage loan. I tend to limit credit applications/inquiries when I know something big is coming up.
Types of Credit Used 10%
There are 3 main types of credit categories in the credit usage section. Those include installment accounts, revolving credit, and open accounts. Installment accounts have a fixed payment each month based on loan amount, time frame, and interest rate. Installment accounts include student, auto, and mortgage loans. Revolving credit involves a differing payment depending on his much is used. A home equity line of credit is considered revolving credit. Open accounts have a balance that must be paid in full each month like charge cards and utility bills. Most open accounts will not be included on your credit report until payments are missed.
Now that you know the basics of your credit report check out these posts:
- How I Raised my Credit Score 150 Points
- Do you have a good credit score?
- The only way to get your free credit report.
Was any of the information shocking to you? I wish I understood how credit reports and credit score were calculated much earlier in life!
Do you have specific questions regarding your credit report, credit score, or how to raise your credit score? Include your questions in the comments or contact me at [email protected] to set up a free credit consultation.
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