Credit Report: How it works

September 6, 2012

A credit report is much like a level one Sudoku puzzle. With a hint of enlightenment and a minor application of logic, it makes absolute sense. There are no aspects that are impossible to understand. This doesn`t reduce its critical role. It carries enormous weight in terms of the financial flexibility and favorable options you`re granted and touches every part of finances. Insurance, rental, interest rates, loans and even mobile phone package options are all opened up by a dazzling credit report. For this reason, it`s excellent financial practice to obtain one and give it a thorough spring clean each year.

The basic credit report is incorporated into a single credit score that tells of your credit worthiness. A higher score generally reflects a more attractive debtor. Essentially, the score defines your entire financial history, so it`s critical to make sure it`s error free and in peak condition. It`s requested by letting agents, banks and employers as a routine measure of a person`s reliability, not only in monetary terms but as an employee and lessee as well. It could be what secures you that dream career or home.

The basic information is displayed first and lists your name, date of birth, social security number and employment information. The latter is an important section to scour for errors, because although it isn`t a major influence on your score, it can affect the way creditors see you. Any mistakes should be reported in writing and corrected within a month.

Trade lines provide your accounts. Lenders in three account categories provide reports on every account you have with them. The type of account, date of initiation, credit limit, total debt amount and payment history are all supplied. Mortgage accounts list all real estate loans currently owned. Revolving accounts categorize charge accounts and credit cards with credit limits and minimum monthly repayments. This is an area that`s ripe for manipulation to your own benefit because it can be incredibly simple to make changes that will reflect positively in your score. Pay off 75% of each outstanding debt if you can. Thereafter, consolidate the remainder under a single low interest lender.

Creditors use this section to analyze your credit worthiness in ways that are open to individual interpretation. However, too many lenders and too much total debt in this area will create a poor financial reflection of your value as a debtor. The simple act of debt consolidation is one of the easiest ways to give yourself a more reputable image. The final category is installment accounts, which are all fixed payment accounts.

The credit inquiries section tells of lenders that asked for your report and disregards creditors that requested it without your loan application. In terms of maintenance, applying for a high number of loans will impact negatively on your score. It`s therefore useful to limit the number of loans you apply for and restrain them to a weeklong period, which will reflect as only one application.

The category that carries the most fear is the looming `public record and collection items.` It details all information in public record from courts and collection agencies. It includes bankruptcies, suits, wage attachments, judgments and foreclosures. This impacts on a hefty 35% of your score and black marks profoundly affect the figure. Bankruptcy stains a record for a decade whilst non-payment remains for seven years. Criminal offenses are permanent, as are large applications for credit. It even lists unpaid library fines and parking tickets. This is the area that can single-handedly drag your credit score into the `do not approve` category of a score beneath 300.

Paying with extreme discipline will have an immediate impact on your credit score because recent financial behavior is more instrumental in your final figure than bad payments are. The theory of spending money saving money in the end is no better reflected than in this facet of your credit score.

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