There’s something mysterious about credit reports, credit scores and the way that this information is provided to consumers. No one knows exactly how credit scores are calculated because agencies use secret formulas. However, you can tell a lot about how banks and creditors see you by looking at your credit report.
Request a Free Credit Report
By law, the three credit bureaus, Equifax, Experian and TransUnion, are required to give you a free copy of your report each year. You don’t have to get them all at once. If you want to track your progress, request one report every few months. You can complete your request online at AnnualCreditReport.com. This is the only official site authorized by all three credit bureaus.
How to Read Your Credit Report
When you get your credit report, the first thing you’ll see is your name, Social Security number, known addresses and personal information. Then, you’ll notice public records regarding collections, delinquencies, bankruptcies and court-issued judgments if there are any. Finally, it will give you a breakdown of your credit history. The tradelines will show all of your current and past credit cards and loans. Each item will have its own section that includes your credit limit, payment history, age of the account and other details.
You should recognize each item on your credit report. If you notice incorrect information or unfamiliar accounts, file a dispute with the bureau that issued the report. This will ensure that companies are using accurate information when they make credit decisions.
Ways to Improve Your Credit Report
1. Making your payments on time is the single best way to build good credit. You’ll also avoid eye-popping late-fees and interest rate hikes.
2. Maxed-out credit cards can decrease your credit score. If you can, keep your balances below 30 percent of your total limit.
3. The length of your credit history is another indicator that companies use to assess your credit worthiness. You can’t fast-forward years ahead, but you can establish a good record by making your payments on time and keeping old accounts open even if you don’t use them often.
4. The amount of new credit that you have and the types of credit that you use both account for 10 percent of your credit score. Applying for too much new credit can hurt your credit score because it tells creditors that you aren’t stable and might not have enough cash to pay your balances. If you have a good mix of credit, including revolving charge cards and a car loan or mortgage, your score may increase slightly.
Checking your credit reports and sticking to a good payment schedule has many benefits. You might be able to move into a nicer apartment or land a great job. You will also save money by getting better interest rates and lower insurance premiums.