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Why your credit report matters

Posted on September 19, 2013
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Credit-tips

Reviewing your credit reports regularly is a good idea - to keep track of your credit history, especially if you plan to apply for a home mortgage.

What's in your credit report?
Your credit report captures key data about you and your finances:

  • Personal information
    • Addresses where you've lived
    • Employment history
    • Phone number(s)
    • Variations of your name, if any
  • Potentially negative items
    • Public records like bankruptcy, liens and court judgments
    • Credit accounts with defaults and late payments that stay on your credit report an average of seven years
  • Accounts in good standing
    • All current revolving and installment accounts
    • Balances and payment histories that may stay on your credit report even after accounts are closed
  • Requests for your credit report
    • Requests for credit that you initiate
    • Information about creditors who are monitoring your credit
    • Pre-screened offers as allowed by law

It's easy to order your free annual credit report from each of the three main credit bureaus one time per year. Just call 1-877-322-8228 or go to annualcreditreport.com, the only official site for free credit reports.

How do credit scores work?
The three major credit reporting agencies generally calculate your credit score by evaluating five key criteria:

  • Payment history (about 35% of the score)
  • Amounts owed (about 30%)
  • Length of credit history (about 15%)
  • Recently opened credit accounts (about 10%)
  • The mix of credit in use, such as credit cards, revolving debt, and mortgages (about 10%)

Typically, the higher the credit score, the less risk a lender takes on. Wonder why this is important? Loan customers with low credit scores may face higher down payment requirements and higher interest rates.

Why do lenders look at credit reports?
Lenders review your credit reports to decide whether or not to lend you money based, in part, on the history they see on your credit report. And they use your credit score to determine how much of a risk you are - typically, a higher credit score indicates less credit risk for the lender. Lenders look at your:

  • Payment track record
  • Current debts
  • Credit history
  • New accounts
  • Types of credit

What can lower a credit score?

  • A history of late payments
  • An excessive amount of debt
  • Legal judgments, such as a past foreclosure or bankruptcy
  • A large number of new credit accounts
  • Numerous credit applications

How can I manage my credit?

  • Establish your credit history
  • Stay current with your bills
  • Pay down the amounts you owe
  • Keep your balances low on credit cards and other revolving debt
  • Don't open new credit accounts you don't need

Keep in mind - negative items in your credit history have less impact as time passes. A missed payment four years ago has a less negative impact on your credit score than a missed payment four months ago.

Be sure to review your credit reports annually for errors, outdated account information, and even suspicious activity that may suggest identity theft. To correct an error or discuss anything that doesn't look right, contact the credit bureau reporting the item in question:

  • Equifax: 1-800-685-1111 or www.equifax.com
  • Experian: 1-888-397-3742 or www.experian.com
  • TransUnion: 1-800-916-8800 or www.transunion.com

If you need help improving your score or free assistance with budgeting, you can use Union Plus Credit Counseling and even receive free debt management plans (DMP) if you qualify.
 

Learn more about the steps you can take, and the benefits available to you through the Union Plus Mortgage program.

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