Living your best financial life without good credit in 2021 is almost impossible to do. Knowing what is on your credit report helps keep your credit score as high as possible, giving you purchasing power and financial flexibility. Nearly half of U.S. residents have significant credit card debt and are struggling to pay it off effectively. What is a credit report? Why is it important to check it and how does the information it contains improve your financial standing?
The COVID-19 pandemic caused approximately fifty-nine million U.S. consumers to increase their credit card debt since spring of 2020. Creditworthiness is rated in particular ways and excessive revolving (credit card) debt lowers your credit (FICO) score. Some credit applications are rejected due to issues consumers neither knew about nor caused. Are you aware of everything listed on your credit report? How do you request a copy of your credit report today? Read ahead for an informative guide about the importance of credit reports and how to use yours to improve your financial standing today.
Credit Reports – A Breakdown
Your credit report contains a documented history of certain financial transactions and accounts made and opened by you within the most recent seven to ten years. Credit card accounts and installment loans are the most common types of accounts listed on your credit report. Bank accounts, medical bills and utility company accounts are usually only reported to one or more of the main three credit bureaus if they become delinquent.
Types of Accounts
Credit card accounts are types of revolving accounts. The majority of revolving accounts have credit limits, which means there is a maximum cumulative balance you are permitted to charge on the account at one time. As the balance is paid down, however, you are allowed to use card repeatedly within is credit limits. Installment accounts include mortgages and car loans. Installment debt is paid monthly over a specified length of time (loan term). Utility bills are sometimes reported to major credit bureaus but usually only when in default. Medical bills only get reported against your credit when left unpaid and/or charged off as losses. Bank account activity is also usually only reported to a credit bureau when accounts are overdrawn for prolonged periods of time and/or show fraudulent activity (bad checks, identity theft, etc.)
3 Main Bureaus
Experian, Equifax and TransUnion are the three major credit bureaus today. Each has an influence and perspective on your credit report and score. Not all lenders or reporting agencies use all three bureaus, but some do. To properly understand your credit score & report it is vital to view reports from all three main credit bureaus.
Negative credit reporting stays on your reports for approximately seven years. This is per account and not a general, every-seven-year reset. Bankruptcies stay on your credit reports for seven to ten years pending type and severity. Accounts you paid on time and as agreed but have since closed stay on your credit report for up to ten years. What is removed from one credit bureau report might not be removed from another, however. Checking all three bureaus once a year helps keep your credit history clean and credit score high.
Additional personal & financial information is also listed on your credit report. For example, your current and former addresses are listed. Your employment history, criminal/arrest records, legal activities and other information relevant to your creditworthiness are also posted.
The Importance of Checking Your Credit Report
Checking your credit report once a year helps prevent various issues from adversely impacting your credit score. For example, credit bureaus and creditors make mistakes. Errors on your credit report lower your credit score and chance of receiving the credit your need in the future. Identity theft happens far too often. Approximately 1,387,615 cases of identity theft were reported in 2020, more than double the amount reported in 2019. Knowing what errors are on your credit report helps you challenge, correct and remove them when it matters most.
Credit Reports & Scores (How They Differ)
Your credit (FICO) score is a three-digit number calculated by the Fair Isaac Corporation to evaluate and sum up your creditworthiness based on your history of applicable transactions. FICO scores range from 300 to 850 with highest numbers equating to the best possible credit ratings. Your FICO score is listed on your credit report but does not comprise the entirety of it. Your credit report lists all relevant account history from the previous seven to ten years. It also lists applicable addresses, employment status/history, criminal records (including arrests), if you were sued and how to contact your lenders.
Improve Your Credit History – Top Tips & Tricks
Multiple effective ways to improve your credit history exist today. The obvious way to improve your credit is to pay your bills in full and on time. Repeated on-time payments steadily increase your credit rating and therefore your future creditworthiness with lenders. Paying above the minimum on revolving/installment debts also helps raise your credit score. Additional tips & tricks to improve your credit history include:
- Dispute all debts you did not make.
- Remove every inactive/irrelevant account.
- Make bi-monthly payments on revolving debt accounts.
- Use credit cards for regular monthly bills you already have cash to pay – then pay them off in full each month on time.
- Avoid maxing out balances on credit cards.
- Avoid frequent and multiple credit checks in short periods of time – they lower your credit score.
- Refinance and/or consolidate high interest accounts into one or two lower interest accounts.
- Do not outspend your monthly budget.
Request Your Credit Report Today
AnnualCreditReport.com is the most trusted source for a free and accurate credit report today. This report includes reports from all three major bureaus, also including your FICO score as assessed individually by each. The Fair Credit Reporting Act (FCRA) mandates all three national credit reporting bureaus provide you with a free copy of your credit report(s) six times every twelve month period through 2026.