If you’ve leased a car, submitted an apartment application, bought a home, or applied for any loan, you know the vital role credit history plays in helping lenders, banks, utility companies, prospective employers, and others determine how risky you are. That’s why it’s so important to understand how your credit report, credit score, and the credit bureaus all work together. To help bring some clarity to a confusing topic, we’ve compiled answers to some common – and important – credit questions.
Q: What is a credit report?
A credit report is a record of your credit history that includes your:
Identity. Name, address, Social Security number, birth date, and possibly employment information.
Existing credit. Information on your current credit. This may include credit card accounts, mortgages, and car and student loans. Credit terms, how much you owe, and payment history may also be included.
Public record. Information about any court judgments against you, tax liens against your property, and whether you have filed for bankruptcy.
Inquiries. A list of companies and/or individuals who have recently requested a copy of your report.
Q: Why is a credit report important?
Lenders, insurers, employers, and others may use this document to evaluate how well you manage financial responsibilities. Lenders may use your credit report to determine whether to approve your loan, and if so, the terms (e.g., interest rate). The same principle applies when an insurance company is deciding whether to grant you a policy and setting your rates. Landlords may use the data to decide if you’re a worthy tenant, and telephone and utility companies may decline services if your report is poor. Some employers may even request permission to access your credit report during your interview process.
Q: Who collects and reports credit information about me?
The three major credit bureaus — Equifax, Experian, and TransUnion — collect and maintain the information in your credit report. These figures are then provided to requesting parties, such as those mentioned previously.
Q: Where do credit bureaus get their information?
Each credit bureau gathers its findings from multiple sources, so you may find disparities in different credit bureaus’ reports. Generally speaking, credit bureaus collect information from your creditors, such as banks, credit card issuers, and auto finance companies. They also obtain information from public records, such as property or court records.
Q: How can I get a free copy of my credit report?
You are entitled to one free credit report every 12 months from each of the nationwide credit bureaus. You can order the three reports all at once or individually at various times throughout the year. If you want a complete view of your credit record, you should examine all three simultaneously. If you are looking to detect errors and monitor changes in your credit profile over time, you may benefit from reviewing one credit report every few months. Visit www.annualcreditreport.com or call (877) 322-8228.
Q: How long does negative information stay on my credit report?
Negative credit information — such as late payments — generally leaves a black mark for seven years. A lawsuit or an unpaid judgment against you can be reported for seven years or until the statute of limitations expires (whichever is longer). If you’ve filed for personal bankruptcy, you can expect that to remain in your file for a decade. Criminal convictions may stay indefinitely.
Q: What is a credit score?
This is the number that reflects the collective information in your credit report; the higher the number, the better. It summarizes your credit history and helps predict how likely you are to repay a loan and make payments on time. Lenders may use credit scores to determine whether to extend you a loan, as well as the terms. To understand how your credit score is determined, ask yourself the following questions:
- What is your payment history? If you have been tardy on bill payments, have been sent to a collection agency, or have ever declared bankruptcy, it will lower your score.
- What is your outstanding debt? Look at your balance-to-limit ratio (also known as a utilization rate). The closer the amount you owe is to your credit limit, the more likely it is to have a negative effect on your score.
- How long is your credit history? Having a short credit history may lower your score, but that can be offset by other factors, such as timely payments and low balances.
- Have you applied for new credit recently? Applying for too many new accounts in a short period may negatively affect your score. However, not all inquiries are considered credit applications. For example, if you request a copy of your credit report, or if creditors are monitoring your account or looking at credit reports to make prescreened credit offers, these do not count as applications.
- What does your credit account portfolio look like? Many credit-scoring models consider how many and what type of credit accounts you have. A mix of installment loans and credit cards may help you, whereas too many finance company accounts or credit cards are considered negative.
Q: What can alter my credit score?
For better or worse, changes to your credit report may influence your credit score. For instance, if you incur more debt or make late payments on certain bills, your score may drop. Conversely, paying down an outstanding balance on a credit card, mortgage or other loan, or correcting an error in your credit report will raise your score.
Q: How can I get my credit score?
A lender may provide you with your score(s) for free during the application process. If you apply for a mortgage, for example, you will receive the credit scores that the lender used to help make their decision. You may also purchase your credit score from any of the credit bureaus by calling them or visiting their websites:
Q: How can I improve my credit score?
One of the most important things to better your credit score is pay your bills on time. Consider setting up automatic payments from your bank account — a popular service utilized by many NVE Bank customers. Just be sure to keep an eye on your account to ensure you have enough money to cover your payments.
Q: How can I correct errors found in my credit report?
If you discover mistakes in your credit report, dispute the information and request that it be deleted or corrected. You must contact either the credit bureau that provided the report, or the company or individual that provided the incorrect information. To reach the credit bureau, call the toll-free number on your report or visit the section of each website that addresses errors and disputes:
NVE Bank offers a range of tools and services to help keep your bill payments on track and your credit in tip-top shape. Visit our website to learn more. You can also speak with one of our knowledgeable Branch Associates by visiting your convenient neighborhood branch, or call us at 1-866-NVE BANK (683-2265).