Understanding your credit doesn’t have to be complicated. Let us help you break it down!
Knowing exactly what is on your credit report, and understanding how it impacts YOU, is key to building a solid financial future. Credit reports are also an important part of protecting your identity.
Banks, insurance companies, and employers use your credit report to determine if you are a financially responsible individual. They use your reports to decide whether or not to offer you credit and what the terms of that offer will be (i.e. interest rates). You may also be denied credit or employment if there is inaccurate or fraudulent information on your reports.
The Federal Trade Commission has prepared A summary of Your Rights Under the Fair Credit Reporting Act. You can also find more information on the FTC website www.FTC.gov/credit
Our Credit Specialists will help you read and understand what is reporting to your credit, help you identify inaccurate information, and tailor a plan to get you back on track to having good credit!
Q. How is my score calculated?
The five main factors that determine you score:
- Number of accounts
- Different types of accounts
- Credit Utilization
- Length of History
- Payment History
You may have noticed that your score differs between each credit reporting agency. This is because not all furnishers (lenders, collection companies, etc.) report to all of the bureaus. Most lenders report to all three of the major bureaus but some may only report to one or two.
Q. What factors make up my score?
There are many factors that go into a credit score and different models are used throughout the industry. Here is a general breakdown:
- Payment history: 35% – This includes information on positive payment history as well as any late payments, collection accounts, bankruptcies, etc.
- Credit Utilization: 30% – This shows how much total credit you have versus how much you’ve used and what your current balances are.
- Types of credit: 15% – This part of the score refers to different types of accounts. Lenders want to know you can handle a variety of accounts such as revolving (credit cards) or installment loans (auto, mortgage, etc.) It is important to have a good mix of account types.
- New credit (inquiries): 10-12% – This section refers to the new accounts you’ve opened, or have tried to open, compared to what is actually showing on your report. Hard inquiries give lenders and idea of what you’ve recently applied for, which helps them further determine if you are a risk.
- Length of history: 5-7% – This is simply determined by the age of your accounts. Lenders want to know you can handle credit responsibly over extended periods of time.
Q. How are credit scores used?
Banks, credit card companies and insurers look at your scores to determine if you are a financial risk. Some employers will even decide your eligibility for employment based on your credit.
You, the consumer, are put into a category based on your score and this will decide how much interest you will pay on any type of loan, how much credit you will be offered, even how much you’ll pay for insurance.