Your credit history is one of the factors that lenders use to assess your creditworthiness so it is important to understand what information has been reported to your credit file.
Ancient Greek playwright Sophocles wrote, “Wisdom outweighs any wealth.” While this statement certainly rings true, it’s also true that wisdom can play a major role in building wealth—particularly when it comes to effectively managing your finances and credit.
Consumers with excellent credit scores tend to pay less for major purchases. In short, your credit is your financial calling card, it can both open and close doors. Credit reports have also become essential tools beyond the financial world. Nowadays, your housing or employment status could be decided by your credit history; and maybe even your love life.
Thus, it is important to be prepared for anything on your horizon by understanding how your credit and credit score can impact financial progress and wealth building. The three major credit reporting bureaus — TransUnion, Equifax and Experian — maintain credit reports. The reporting companies issue credit reports to creditors, insurers and others as permitted under law for the purposes of evaluating your financial responsibility.
Here is an example of how the system works:
Apply for a Credit Card – When you apply for a new credit card, the creditor requests a copy of your financial history, or credit report, from one or more of the credit reporting companies.
The Creditor’s Assessment – The creditor may use your credit report, a score, and other information you provide (such as income or debt information) to determine whether to approve your application and what rates to offer.
The Creditor’s Decision – If you are issued a card, the creditor reports that account to the credit reporting companies, and then updates it, including your balance and payment activity, about every 30 days.
Your Credit Profile Updated – The credit reporting companies update your credit report as they receive new information from creditors and lenders. Your credit profile changes based on your financial activity. The next time you apply for a credit card or loan, the process repeats.
Managing Your Credit Report
Your report is divided into six main sections. When you open a new account, miss a payment or move, these sections are updated with new information. These sections are:
- Identifying Information (name, address, birth date and Social Security number)
- Employment
- Consumer Statement
- Account Information
- Public Records
- Inquiries
Negative records – Late payments create a negative record. Generally, negative records will stay on your report for up to 7 years (up to 10 years for certain bankruptcy information). Positive records can remain on your credit report longer.
Your Credit Report is updated in most cases every 30 days – Your credit report is updated with new information reported by your creditors. Most creditors report new information approximately every 30 days, to reflect your account balances and payments you make.
Check every 6-12 months – Not all creditors report to all three companies; the companies obtain their data independently, so your credit reports from TransUnion, Equifax and Experian could substantially differ. That’s why it’s important to check your three credit reports every 6-12 months to ensure that the information is accurate and up-to-date.
Check Your Credit Report regualarly…checking your own credit will NOT harm it.
Correcting inaccuracies – Under the Fair Credit Reporting Act, consumers are protected if there is inaccurate information on their credit reports. If you find inaccurate information on your credit reports, you can contact the associated creditor or lender directly. You can also dispute the inaccuracy with the credit reporting companies.
Know the system – Managing your credit and maintaining a good credit history can lead to better rates on major purchases. It’s recommend that you check your credit reports every 6-12 months, or at least 3 months before a major purchase, in order to identify potential inaccuracies and any signs of identity theft.
Routine check-ups, along with paying your bills on time, keeping your credit card balances below 35% of their limits, and correcting any inaccuracies will help ensure your credit reports are viewed in the most favorable light.
Finally, if you believe you’re a victim of fraud, you can activate automatic fraud alerts and the credit bureaus will place an initial alert on your credit report. This alert encourages lenders to take extra steps to verify your identity before extending credit.
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