2/21/2011

What is on your report?


A Credit Report is a snapshot of your credit reputation. Credit reports are commonly used by banks and companies to determine the interest rates when issuing credit to customers. As the customer, a high credit score will result in a lower interest rate which makes a loan less expensive.

According to federal law, everyone is entitled to one report from all three credit bureaus, Equifax, TransUnion and Experian, each year. The only free reports are available at www.annualcreditreport.com  or call 877-322-8228. The website asks a series of questions, and then allows access to the report. The biggest problems with credit reports are incorrect or outdated information. Because each agency has its own reporting practices, it is important to take a look at all three credit reports.

The most common formula to calculate a credit score is created by the Fair Isaac Corporation, FICO. The FICO score is a formula which uses payment history, the amount owed on credit accounts, length of credit history, new credit and type of credit. The formula is ubiquitous and cannot be calculated by a consumer. The FICO score ranges from 300-850, with approximately 40% of scores are 750 or better.  A Credit Score is use by businesses to determine interest rates for loans, insurance premiums and may even be used when applying for job. The higher the score the less of a credit risk.
The free credit report does not include the credit score. A Credit Score can be purchased by several online sources. The three reporting agencies’ reports may have different information and actually calculate the score slightly differently.

Most of the time is more important to know how to raise a credit score rather than the score. If full payments are made on time, the score will improve overtime.

Tips to raise a credit score:
Pay bills on time.
Make up missed payments and keep all payments current.
Maintain low balances on credit cards and other revolving debt.
Pay off debt instead of transferring it to new account.
Do not open new credit accounts.

Beware of “Credit Repair Agencies” or promises to “fix” credit! These companies charge a customer to dispute or correct information. This can be done by the customer. Some advertisement claim to provide a free credit report but are actually “introductory” offers that convert to expensive subscription services. Expect to see ads for companies try to sell things that are not needed such as credit scores, "Credit Monitoring Service" or a “3-in-1 Report”.  

Credit scores are important in our society. Use the steps described here to improve your credit score!

Free Credit Report: www.myannualcreditreport.com
Understanding Credit Reports www.myfico.com

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