Saturday, August 09, 2008

Pointers on Credit History

Your Credit History:

Three simple words but words that determine your financial success. Your credit history has an influence that all lending institutions consider when assessing their level of risk when looking at your application for credit. Because of its importance it is vital that you know and understand what your credit report says about you.

Your Credit Report:

This is a document that shows your personal financial information, good and bad. Based on this information you are given a score called a FICO score. The higher the FICO score the better. All three major credit bureaus, Equifax, Experian, and Transunion, report this information. When you apply for any kind of credit, the lender will get a copy of your credit report from one of these three companies.

While this all sounds very technical, what it really means is that your credit score will influence all financial decisions about you in the future. For this reason it is vitally important that you read your report regularly and keep a record of it. Sometimes mistakes have been made on your report. By frequently checking your report you can find and resolve these errors before they can harm your credit application.

What Your Score Means For You:

It means everything! As mentioned above, your credit score influences decisions made by institutions considering your application for credit. If your credit score is less than perfect, your application may be turned down or you may have to pay a higher interest rate than someone with a higher score. Problems can remain on your report for as long as two years even after you think they have been resolved.

What Influences Your Score:

One of the main influences is your payment history. Have you paid your bills on time? Your score will be negatively affected if you are routinely late with payments.

Another factor is the size of your outstanding debt. This includes outstanding balance on loans as well as the credit limits on credit cards. If you have several credit cards, even if they have small balances, the possibility that you could theoretically charge these cards to the limit will negatively affect your credit score.

The length of your credit history is also considered. It may seem strange but not having a credit history can be a detriment. The fact that you have no debt means that you are an unknown quantity. The lender has no idea how you will actually handle credit.

Obtaining Your Report:

As of January, 2004, all credit bureaus are required by law to give you one free copy of your credit report each year. The credit report will list your debts and problems such as the number of payments late by over 30 days, etc. They can, however, charge you for the actual FICO score. Get on the phone or online to see what the policy is for each of the main credit reporting bureaus.

Restoring Credit Worthiness:

This topic will be covered in a subsequent article.

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