Credit Reports and What You Need to Know

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Credit reports are a history of how a person manages their credit. They are used by creditors considering loaning you money to evaluate the likelihood you will pay them back.

There are three main credit bureaus: Equifax, Trans Union, and Experian.

The information in your credit report includes your name, current and previous addresses, current and prior employers, and your payment history on non-private loans, credit cards, and leases. Most information falls off your credit report after seven years. Certain serious delinquencies like foreclosures and bankruptcies will stay on your report for ten years. Credit bureaus assemble data on the name of the company who have lent you money, the highest balance or potential balance for the account, the current balance on the account, and how you have paid the account. They have information on whether your payments were on time, 30 days late, 60 days late, 90 days late, or more. Some reports include detailed information about your account balances for the last 24 months and the amount you paid each. This information is called trended data.

What is not included in your credit report are things that are not loans. For example, your utility bill, phone bill, and subscriptions like Netflix, rent, insurance, and medical bills.

Your creditworthiness is based on a number called your credit score. Each credit bureau calculates your score differently. Almost 50 different credit scoring models are used for various lending institutions, for example, mortgages, credit cards, auto loans, and insurance policies. There’s also a generic version to which the layperson has access. Most credit scores range between 350 and 850. Your credit score is based on how many accounts you have, the types of accounts you have, the length of time you’ve had those accounts, your payment history, and your utilization of credit. The utilization of credit is for credit cards. They calculate what percent of your available credit you have used. The closer you are to the limit, the greater your risk of missing a payment, so the lower your credit score.

The companies who have access to your credit information are lending institutions and insurance companies with a “permissible purpose.” That is only with your permission.

Inquiries affect your score but not as much as the commercials would have you believe. They want to sell their services, so fear is a motivating factor in getting you to use their app. The effect of a credit inquiry is minimal, between 2-10 points, and short-lived, about 3-4 months. Once you have one, you can have many more for mortgage inquiries within 30 days, which will not further affect your score. The real danger with credit inquiries is when many are made in a short period of time; for example, a person applies for two credit cards, shops for a car, and has two more inquiries from auto dealers. You can improve your score by paying bills on time, maintaining low usage on your credit cards, preferably under 25%, and paying the balances in full every month.

There are two types of credit inquiries, a “hard” and a “soft” credit pull or report. The hard inquiry leaves a record of the investigation and can be used to determine final credit approval. The soft pull does not leave an inquiry on your report and is only supposed to be used for previewing credit. The hard pull can also trigger lender competitors to see that you are in the market for a loan so that you may get a flurry of contacts/advertisements for similar loans. The companies have to pay for the trigger leads, so it’s not usually overwhelming.

You can get a copy of your credit report and credit score annually from each credit bureau for free.

To learn more about credit reports and credit scoring go to https://www.myfico.com/credit-education

Don Rizzo is President of Sun Mortgage Company, Inc., is a licensed mortgage broker in NY, NJ & CT.  Don has been in the mortgage industry since 1987 and is a top-rated mortgage professional.

Contact Don at 877-478-6562 (877 4 SUN LOAN) or via e-mail at donrizzo@sunmortgage.com

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