What’s The Difference Between Your Credit Report And Credit Score

You have heard all about it from your friends, colleagues, banks, cell phone service, credit card companies and still have no idea what is a free gov credit report. You are not alone in this, as according to FINRA Investor Education Foundation, only 38% of participants had obtained their credit report in a study carried out in 2009. Ideally, this is a report detailing your financial activities and is often kept by lenders. Essentially, it defines your credit rating, which is used to show any financial risks you may have.

In your credit report, you will find your personal information. This includes identification details, your address and those of your former and current employer, your birthday, and your social security number. Another element is your credit history. This is a detailed record of your present and past accounts, any balances, your creditors, and your credit limit. There are also public records detailed in your report for any tax issues, bankruptcies, and other monetary judgments.

An inquiry section is also included to indicate the number of times others have accessed your report such as when you are looking for a loan. The most important aspect of your report is the credit score. Your credit score is a rating used to determine how credit worthy you are. It is usually in the form of a three-digit number ranging from 300 to 800. A good credit score range is reflected by a high score of over 680.

You can get your report from credit reporting agencies like TransUnion, Equifax, and Experian. They are mandated to give you a free report annually. It is very important to obtain your report at least every year because it does play a great role in your life. If you want a sound financial foundation, you will need to have a great credit score, which is only found in the report. Often times, it is possible to observe errors in your report be it misspelt names, wrong accounts or any other errors. As such, you must report the errors immediately to avoid having a bad credit score.

There are known mistakes that people make when it comes to their reports. First, be keen on how many accounts are active or closed, and your debts. You may have applied for a credit card and forgotten you had one. Having credit you do not require only indicates your lack of credibility and commitment, which makes you a risky debtor. Scrutinize all your accounts and creditors because they will all be in your report.

If you want the benefit of paying low interest rates, you have to find a way of improving your credit score. This might take you a while especially if your score is below average but you have no choice if you are to gain financial freedom. Your score is calculated in reference to some factors including punctuality of debt payments, the capacity of credit used, the extent of credit history, and types of credit.

You should ensure that you make regular payments of your debts to improve your score. Do this consistently until your debt to income ratio decreases. In addition, avoid getting more credit when you are paying for current debts. It is also wise to keep your accounts open after clearing your debts as it shows your credibility and ability to fulfill your commitments. Most people are used to making credit inquiries often and are unaware of how this can affect their score. Avoid these inquiries as they lower your score. If possible, you can raise your score by paying up your debts by cash. The one thing you must take seriously is to get your report regularly and monitor your scores.

Tips For Improving Your Credit Report And Credit Score

The importance of your credit score cannot be overlooked. The problem is that most people do not realize just how important it is until it is too late. When you are young or uneducated on the topic of credit, you may do things that will affect your credit for the long-term and you may not even be aware of it. Your credit score is calculated regularly and can change several times a year, based on the updated information on your credit report at that time. Your credit score can be as low as 300 and as high as 850. What is considered as an acceptable credit score depends on the lender or company considering it, but typically a person with a score of 720 or higher is considered as a low credit risk to lenders. This means if your score is 720 or higher, you are more likely to get approved for loans and lines of credit.

Checking your free credit report gov regularly is always important. This allows you to keep track of any outstanding debts you owe and make sure no one has stolen your identity and is using your name to make purchases or take out loans and lines of credit in your name. Checking your credit rating is easy. You can go online or order your credit report through the mail, usually free of charge. You simply have to enter some basic information to confirm your identity, and there is no hit to your credit when you are checking your own report. To stay on top of your report, it is best to check at least once every six months.

There are many small and large steps you can take to improve your credit rating. Repaying loans and debts on time is one of the most important steps. Even if you are not able to meet the repayment date, work with the debtor to come up with an agreeable payment arrangement, before the debt is sent to a collection agency. At this time, the debt has likely been reported to the credit bureau, meaning it will show up on your credit report and negatively affect your score as a result.

Taking out loans and lines of credit can dramatically improve your credit score, but only if you make your payments on time. Avoid having too many debts at once, not only because this reflects negatively on your credit rating, but also to avoid overcomplicating things for yourself and finding yourself unable to make all of your payments each month. The later you are with your payments and the less willing you are to come to a payment arrangement and get things sorted, the more negatively your credit score is affected and the more you are hurting yourself in the long run. Talking to debt collectors is certainly never thrilling, but is necessary to get your debts dealt with and keep your credit score high.

Credit cards are one of the biggest factors on your credit score. The most important thing to remember with credit cards is to keep a high limit and a low balance. Even if you make your payments before they are due, if you have your credit cards maxed out all the time, this is going to have a negative effect on your rating overall. The general rule is to keep your balance no higher than 10% of your total card limit, to ensure your credit rating stays as high as possible.

The more steps you take toward improving your credit instead of affecting it negatively, the easier it is to get loans and make it farther in life. Keeping an eye on your credit report and continuing to work on improving your credit score is one of the best things you will ever do for yourself and your family. You can also work with a financial adviser or credit expert to get personalized advice and help with improving your credit and keeping your score high.

Types Of Credit Scores

A credit score is a number that is assigned to an individual to indicate his creditworthiness. The number is usually contained in a credit report data, which can be obtained for free by one of the major three credit bureaus: Equifax, TransUnion, and Experian.

The three national credit reporting agencies use three scoring models, all of which use the information available at the databases of the agencies.

FICO Scoring Model
FICO is the most commonly used credit score model. The model was developed by the Fair Isaac Company and was the primary credit score method used for many years. The model uses a proprietary formula to “predict” the probability of a borrower repaying his loans based on his past credit information.

In the past, Equifax, TransUnion and Experian used FICO to give consumers their credit scores for a fee. Consumers can also get their FICO scores directly from Fair Isaac Company. Lenders can also request for the FICO scores of potential borrowers from the company.

Vantage Scoring Model
After time, the three credit reporting bureaus decided to come up with their own credit scoring model to compete with FICO. Since the companies already had consumers’ data information on their databases, they decided to develop a join credit score model. This model was marketed as the Vantage credit score. The agencies used both the FICO and Vantage scoring models for some time.

PLUS Scoring model
Fair Isaac Company saw the development of the new scoring model as a violation of anti-trust laws by the credit bureau agencies. In turn, it tool legal action against them. This legal tussle made Experian upset. To get out of the mess, Experian decided to develop its own proprietary scoring model that it named PLUS. In 2009, Experian ceased offering FICO scores to its customers. However, FICO still continues to be the most widely used scoring model and lenders still use it.
The other two credit bureaus, Equifax and TransUnion, followed Experian’s way and came up with their own scoring models named ScorePower and TansRisk score respectively. All the three credit bureaus market their own proprietary credit models together with the Vantage model.

How the Models Work
FICO and the models introduced by Experian, TransUnion and Equifax use proprietary formulas to determine the credit worthiness of a borrower. Since they use different formulas, their scores are different. They also change from time to time depending on a number of market factors and federal reserve actions.

The typical accepted scores for FICO are 350-850, Vantage scores are 501-990 while PLUS scores are 330-830. These credit scoring values are only proprietary and do not affect the chances of a borrower getting a loan. The main thing that lenders look at is the credit history of the borrower that is available in the databases of the credit bureaus.

When you want to apply for a loan, it is important to look for a credit score that the lender is working with. Most lenders still use the FICO score but you may want to ask first before you request for your credit scores.

7 Persistent Credit Report Myths

There are myriad myths and misconceptions about a gamut of different topics, but few are as persistent as these 7 credit report myths that live on to this day. Worse still is that the whole subject is technical, which makes these persistent myths about it all the more impressive and annoying at the same time – they just will not go away.

Perhaps what keeps them alive is that most of them are preconceived misconceptions. They are mistaken assumptions that can easily be made by anyone, regardless of how long they have been around. Do you still believe in some of these credit score myths and misconceptions?

Myth#1 – Checking Your Credit Report & Score Can Lower Your Score

To become financially savvy and in control, you need accurate data from reliable sources. Checking your credit report and score is a recommended way to do just that; personal inquiries into your credit standing – these are called “soft inquiries” – do not reflect on the credit report and do not impact your credit score. In fact it is highly recommended that you keep a close watch on your score if it goes south, so you can monitor the progress of your finances and assert control based on what you observe. You can obtain a free credit report from the gov once an year and this will not damage your score in any way. It is your right to examine them.

Myth#2 – There are Quick Fixes that You Can Use for Bad Credit

Just as a bad or ailing credit score is the result of a long period of shabby financial handling for one reason or other, you cannot use a ‘quick fix’ to just miraculously get rid of it. Money matters are serious issues and no sleight of hand can relinquish your low credit score just like that. You have to work on your finances for a long time to get your credit score back up to par, and even then you might not be able to borrow the way you would if your record was spotless to begin with.

Myth#3 – Credit Repair Companies Can Fix Your Credit Score for You

This is a variant of the “quick fix” myth and is more of a misconception.  Credit repair companies do exist, and the reputable ones do a good job of helping you fix your credit score. That is what this misconception misses: the companies help YOU fix your credit score. They do NOT do it for you. They are advisors and counselors and financial abettors, no more, no less. For some people, they can easily learn how to fix their bad credit and do it on their own. For others, there are credit repair companies.

Myth#4 – You Have Only One Credit Score

There are three main credit monitoring and reporting bureaus that keep track of your credit score: Equifax, Transunion, and Experian (plus Innovis in the US).  If you only had one credit score, there would be no need for three bureaus. These three organizations have similar methods of calculating your credit score, but have differences that set one apart from another. One bank or creditor might get reports from one of these three while another bank or creditor gets reports from another, though usually they check records of all three to get a better picture of your financial status.

Myth#5 – You Do Not Have to Worry About Credit Scores If You Do Not Use Credit

You can live without credit, but can you live without renting your apartment, applying for insurance, or getting a job? Your credit score is a reflection of your financial capabilities and responsibility in handling an important aspect of your life. Anyone (landlord, insurance company, potential employer) who needs to understand how you handle your finances for “permissible purposes” can get a copy of your credit report (at times with your permission) and base transaction decisions on that.

Myth#6 – Your Good Credit Offsets Bad Credit

Bad credit history will not look good just because you are currently successfully handling your finances well. Banks and financial organizations that check your credit report do so to see how much of a risk you bring to a business transaction. If there is still existing bad credit history on your report, your good history will not offset it, though your current good standing will make a significant impact on the overall decision. It might not seem fair, but there are many reasons you might have gotten bad credit before such as economic situations beyond your control. These factors must also be considered as possible risks.

Myth#7 – Some Items Last Forever in Your Credit Report

Foreclosures and bankruptcies have a huge impact on your credit score, but they will not reflect on credit reports forever.  Such items can last in reports for as long as 7 to 10 years – which is a very long time for bad credit to affect your finances – but they will be shed off after that allotted time to reflect new financial transactions of import. Since your good credit does not offset bad credit, clearing up this misconception should be good news for you: that lien or bankruptcy from years away will eventually wash off, and you can work towards making your report a clean slate until then.

Obviously, it is quite simple to make the erroneous assumption that if you do not use credit your credit score will not matter that much or that you have only one credit score. It is even just a figment of fairness to assume that good credit offsets bad credit. What is important is going through the effort of clearing up what is credit report myth and correcting misconceptions. After all, you can get problems with your credit if you continue to believe in these credit score myths.