Our federal law requires that everyone is entitled to one annual free credit report from each of the three major credit reporting bureaus- Experian, TransUnion & Equifax. For most consumers, the overall wealth of information on guarding your financial data can be overwhelming and often prevents them from taking advantage of this offer. In fact, the Lexis corp recently published a study that shows that 38% of US consumers have checked their credit reports in the past year. Even more alarming is that a full 17% of Americans have never seen their reports at all! We don’t you to be one of those consumers that pass up on this “right”.
The simple reason this large number of citizens ignore their credit file is that the simply do not understand the damage this can cause them. Most of those surveryed are under age 30 and may not have encountered a major financial purchase yet. While we can all relate to being naive at a young age about adult responsibilities, this is one area which will certainly come back to bite you in the future.
Credit Report 101
Your credit report contains your name, address history, employment records, social security number, etc… It also contains chronological records for your previous payment history, public records, credit inquiries and disputes. In short, it is the complete picture of your financial life.
Who monitors your credit for errors?
Any incorrect information in your report will reduce your credit score, which can cause your interest rates to rise or even cause you to be denied credit altogether. Montioring your credit report for errors is a smart move as errors and inaccuracies will slow any loan processing. The TV show 60 Minutes, recently said that there are over 40 million credit reports in this country with errors. That is over 20% of all credit reports!
While we all know that we need to pay attention to our credit scores because higher scores mean lower rates on car loans, mortgages and other financial vehicles. But have you ever thought that this number is actually the most important financial number in your life? That can be daunting to consider, but it is very serious and can cost you thousands of dollars in interest rates if you choose to ignore it.
So what is a good credit score?
The credit score range goes from 300 up to 860. Most consumers should be aiming for a score over 750. That is the goal that most national lenders classify for preferred interest rates. Clearly, the higher your score is the better rates you should be offered. A difference of 30 points could wind up costing you $50,000 or more on the average ($200,000) mortgage in the United States.
Further complicating the situation is that each lender will use a different formula to arrive at your credit score. This is because FICO created a system of formula’s lender can tweak and calculate to arrive at that final score. So, if you are feeling confident with a score of 800 from Experian, make sure you check your numbers with TransUnion and Equifax too and take an average of the three scores. Other times, creditors may only report your history to one of the three major bureau’s and that can cause your score to fluctuate between credit bureaus. That median average will be a more accurate representation of your credit worthiness, and furthermore, will be a better preview of the lenders perspective.
Understanding The Relationship Between Your Credit Report & Score
Credit report is a detailed file on any credit history you´ve received. This data is collected from the three bureaus and all creditors report this info to one or more of the bureaus. Credit reports show your credit limits, payment history, bankruptcies, the date the account was opened, currently open lines of credit, etc…
Credit score is a number calculated from all of the available information within your credit report. The credit bureaus compile the length of time you’ve established credit, your credit utlilization percentage, payments history, along with your credit inquires, disputes and derogatory notes to gauge your credit worthiness with a three digit number.
Know that you understand how your score is computed and the value of checking your credit report each year, take advantage of your rights and get your annual free credit report now!.