I stumbled on a very interesting post by the New York Post. The title was “Shocking Percentage of Americans don’t Know their Credit Score”. I began to read and was intrigued to learn why that was the case. According to the article “One in eight Americans are unaware of their credit score, according to new research. A study conducted by OnePoll in conjunction with LendingPoint examined the credit score knowledge and lending habits of respondents.” What was also alarming from this research was 71 percent of those studied are totally unaware of the various ramifications associated with a bad credit score. Also, 44 percent didn’t know that higher rates and more restrictive terms on any approved loans can accompany a poor credit score. Seven in 10 of those studied say they have personally felt held back in life because of a poor credit score.
This article came out in 2019 but is still relevant today. As young professionals we MUST work on our credit. Credit will be very important in our lifetime. In a recent survey by Marcus by Goldman Sachs, 44% of respondents said that boosting their credit is something they plan to focus on in 2022. If you haven’t looked at your credit report, some of the categories can be confusing. In this article we will go over a few things listed on our credit report and what they mean. But first….
Why is credit important?
Credit is important for several reasons. It allows us to access loans and other forms of financial assistance, which can help us in times of need. A good credit score can also help us to get lower interest rates on loans, meaning we can save money in the long run.
Credit is also important because it is one way that businesses and lenders can assess our financial risk. If we have a good credit history, this shows that we are a responsible borrower and are more likely to repay any money we borrow. This can make it easier to access loans and other forms of financial assistance in the future. It’s important to remember that our credit score is not static. It can change over time, depending on our financial history. Therefore, it’s important to keep track of our credit score and credit report, so we can identify any potential problems early on.
What is a credit report?
A credit report compiles the credit history of an individual. The information is housed mainly within three credit bureaus and contains the individual’s history of borrowing, payment timeliness, and number of credit inquiries.
Credit reports basically sum up how good we are at paying back debt. The lenders review our credit report to determine the risk in extending credit to us and what the lending terms will be. Names of the credit bureaus include Experian, Equifax, and Transunion. There have been reports that other credit bureaus exist, but the list above are the main three. Depending on which bureau’s report you are reviewing, some information may appear differently on each page.
The Payment History
The payment history section of a credit report shows you how current your accounts are. For each month on each loan or credit line you have opened in your name, the report will indicate any payments that were 30 days, 60 days, 90 days, 120 days, 150 days, or 180 days past due. The report will also indicate any foreclosure proceedings, repossessions, insurance claims, collections, charge offs, closed accounts, or display No data for the Time period etc.
The late payments are recorded on the credit file when the individual misses paying at least the minimum payment by the deadline designated by the lender/creditor. If a payment goes between 150 – 180 days past due, most creditors will send the account to a collections company. The Collections Department will try to get the past due debt repaid and your credit score will drop by 25-120 points.
Accounts that may be considered negative: As stated above some of the most common things that report negatively on your credit reports are charge offs, collections, and bankruptcies. This negative information can remain on your credit report for 7 years for missed payments and up to 10 years for Chapter 7, 11, or 12, bankruptcies. If you have any potentially negative information on your credit report it will be listed under this section.
Credit Items/Account Details: Under this tab you will see all accounts associated with your name and social security number listed. Here you will see the name of the creditor that lent you the line of credit or loan, your partial account number, and the creditor’s address and phone number.
There will be a few sections under this tab that provide details about the account. This includes:
Date Opened- The date the account was opened.
Address ID- The ID number that the credit bureau assigns to the address the creditor has on file for you.
Type- Describes the type of account (i.e. credit card, mortgage, education (i.e. student loans), etc.
Responsibility- This section specifies the ownership of the account (i.e. Individual, authorized user, or if the account is joint with someone else), etc.
First Reported- The month and year the credit bureaus began reporting the account.
Monthly Payment- The amount that is due to be paid monthly.
Credit Limit- The line of credit that was approved and given to the account holder.
High Balance- The highest balance that was carried on the credit card within a certain amount of time.
Recent Balance- The previous reported balance on your credit line.
Status- Shows the current status of the account (i.e. Open/never late, paid/closed, closed etc.)
Date of Status- The last time the status of the account was reported by the creditor to the bureau.
Report Sections
Account History- This section may show some of the following acronyms, (AB), (DPR), (SPA), (AAP), which stand for, the Account Balance, Date the payment was received, Scheduled Payments, and Actual Amount paid, respectively. This section will break down your balances owed from month to month. If you are carrying a balance, you will see the number of months that you have carried a balance and the amount owed each month. At the bottom of the account history, you will see the range of months you have carried a balance on the line of credit. For example, it may say “Between January 2019 and March 2020 your credit limit/high limit was $234.”
Credit Utilization- is a percentage calculated from the total amount of credit currently used divided by the total amount of revolving credit you have. Rule of thumb is to try and keep your credit utilization under 20% for credit cards. For more diverse credit reports that include mortgages and real estate please speak to your financial advisors to understand your credit utilization percentage.
Credit Applications/ Hard Inquiries – Hard inquiries are requests that allow lenders to look at your credit report to see if they will be able to lend you a line of credit and on what interest rate terms. Be mindful of the number of hard inquiries you allow. Hard inquiries stay on your credit report for 2 years and can negatively impact your credit score.
Consumer Report Views/ Soft Inquiries – Soft inquiries are sometimes initiated by lenders or service providers to see if you pre-qualify instead of initiating a hard inquiry. Certain credit monitoring sites and software may use soft inquiries to update you on your credit score monthly; such as Credit Sesame or your credit card company. Soft inquiries do not affect your credit score.
Personal information – This section shows the name and name variations reported on the credit bureaus’ database for an individual. For example, if your name is Brian John Henry, you may see variations such as, Brian J. Henry or Brian Henry. It depends on the name variation you used when you applied for the line of credit. So be sure to check and review this section to make sure your name is being reported accurately. Also, there’s a section that displays address(es). These are addresses where you previously lived or currently live that are being reported on the credit bureaus’ database. Credit reports may also include an information section on your year of birth, telephone numbers, or current employers.
What are some ways we can monitor our credit for free?
Download your Annual Credit Report- One way to monitor your score for free is to order your free annual credit report. You can receive your free online credit score by going to www.AnnualCreditReport.com. Click on “request your free credit score” and the website will prompt you to type in your personal information and ask you a few questions to confirm your identity. You are only able to get one free credit report a year. Due to the pandemic, you can get free credit monitoring more than once, but this feature may end at some point. You can access your credit report from this website as well as from the actual credit bureau websites.
*Side note- Please use a protected browser when accessing your credit report!
See if your bank can provide your free FICO credit scores- Some banks provide your free FICO scores on your online banking app and website as a perk of being their customer. Most banks that offer this benefit will share your FICO score and it’s usually the score from Transunion and Experian. Normally, they don’t provide too many details or breakdowns of your score or credit history. It’s just an FYI on your score, but it is a free way to monitor your credit score at least.
Credit Monitoring Apps
Credit Karma– Credit Karma is an app that I’ve used for years to help keep up with my credit history information. I used to pay for credit monitoring with each credit bureau, but I felt that it was a waste of money when there were ways I could get credit monitoring for free. Credit Karma uses the Vantage score system which ranges from Exceptional 750-850, Very good 700-749, Good 650-699, fair 550-649, to poor 549-300.
*Side Note- Your Vantage score is not the same as your FICO score. Lenders use the FICO score to determine your loan eligibility. The FICO and Vantage scoring systems have slightly different score ranges. For example, you can have a Vantage credit score that is considered exceptional, whereas that same score would be considered only very good under the FICO scoring system.
Credit Sesame– Credit Sesame is my favorite free credit monitoring app. I use their platform more than credit karma. Credit Sesame offers a lot more information about your credit score. If you are looking for an app to monitor your credit that provides breakdowns and explanations about what things mean, Credit Sesame is an AWESOME app for that!
*Side note- Credit Sesame is powered by Transunion. Credit Karma gives you both TransUnion and Equifax credit information but does not have the extra information that Credit Sesame has to offer.
Experian– Experian is a great way to monitor your Experian credit report. You can get all three bureaus, but you will have to pay for that separately unfortunately. The thing I really like about Experian is that they provide your FICO score vs. the Vantage score which Credit Sesame and Credit Karma provide.
Credit Wise by Capital One– Credit Wise by Capital One offers free credit monitoring as well. Their website does break down your credit report and helps you to understand your credit! I personally haven’t been using their platform, but you can give them a try and let me know what you think about Credit Wise.
CREDIT SCORE RANGES
FICO SCORE- Exceptional- 850-800, Very Good 799-740, Good 739-670, Fair 669-580, Very Poor 579-300
VANTAGE SCORE- Exceptional 850-750, Very Good 749-700, Good 699-650, Fair 649-550, and Poor 549-300.
Here are a few tips on how to maintain good credit:
Pay your bills on time: This is the most important factor in your credit score. If you pay your bills late, it can damage your credit score.
Keep your credit balances low: This means that you shouldn’t max out your credit cards or have a lot of debt in general. Having high balances can hurt your credit score.
Don’t open new credit accounts unless you need to: Every time you open a new credit account, it can lower your credit score. So only open new accounts when you really need them.
Conclusion
Our credit score is one of the most important numbers in our lives. It can determine whether we qualify for a loan, what interest rate we’ll pay on that loan, and even whether we can rent an apartment or get a job. That’s why it’s so important to understand our credit report and take steps to improve our credit score if necessary. We hope this article has helped you learn more about what goes into your credit score and how you can work to improve it. You don’t have to do this all by yourself… we can work together to improve our credit! What are some steps you are going to take towards improving your credit score? Let us know down below! Check out my other blog 25 ways we can be financially independent