All About Credit

It’s been a long time since I have had a post about credit reports and scores. It’s about time to revisit this important topic so you can take control of your credit once and for all. Let’s get started!

What is a credit report, and why is it so important?

By now, you probably know that a credit report is a financial report card of sorts. It shows you the history of your accounts – mortgage, credit cards, student loans, personal loans, and more. You will see a listing of open and closed accounts, inquiries into your credit, and a history of payments made over time. In addition, you will notice your personally identifiable information such as your full name, address, date of birth, social security number, and employment information, as well as public records. Creditors, among others, will look to your credit report to determine eligibility for requests. They will want to see a long history of varying types of credit with a positive repayment history.

Even if you subscribe to the “cash only” lifestyle, you still need to maintain good credit. It’s not just creditors who have an interest in your credit report. Potential employers, insurance companies, leasing companies/landlords, and others will pull your credit before determining whether to work with you. Even in an established relationship, these service providers may need to check your credit before granting certain amenities, like a lower rate or premium, so you want to be sure that your credit is in tip-top shape.

What if my score isn’t so great?

You aren’t alone. Lots of people – particularly since COVID came onto the scene – have had some hiccups in their credit. Don’t worry if you are one of them. A one-time slip-up is not going to destroy your credit, especially if you have rebuilt it since. While it’s true that never being late on a payment is the best scenario, creditors understand that life happens, and they usually will not turn down a request based on one mishap. Applying for credit? Do be prepared to explain any negatives in your credit history. If you had a medical emergency, job loss, divorce, or another major incident, you need to be upfront with your lender.

What if I don’t know my credit history or score?

You’ve probably heard the saying, “Knowing is half the battle.” Being aware of what’s on your credit report goes a long way to maintaining or improving it. You can request one free credit report from each of the three credit bureaus annually. At InFirst, we recommend staggering your requests throughout the year to stay on top of things. The three credit bureaus are Experian, Equifax, and TransUnion.

What’s not included in your report? Your credit score. I know, that seems silly. Lenders pay a fee to have access to a full credit report for their applicants, they will be able to see your credit score, even if you can’t. You have the option to view your credit score by paying any of the credit bureaus for it or save your cash and view your score on someone else’s dime.

You heard that right…you don’t always have to pay for obtaining your credit score. If you have a financial institution or credit card company, you may already have access to this information. InFirst, for instance, provides members with their credit score for free with Mobile Banking. In our case, we update these scores quarterly, but each institution/creditor is different. Whatever you do, don’t rely on Credit Karma for an accurate score. They are often wrong by tens of points.

Speaking of accuracy, I noticed a discrepancy in my report. What should I do?

First off, don’t panic. You can file a dispute directly with the credit bureau(s) that are reporting the inaccuracy. The credit bureau will then investigate the occurrence and come to a resolution. You could also choose to include a statement on your credit reports. If you suspect that a discrepancy is due to identity theft, you have the option to place a freeze on your report to prevent your credit from being used fraudulently. Just remember to unfreeze it for any legitimate credit request.

This is not directly credit-related, but always sign up for purchase alerts and fraud alerts on every account you have. This can save you from a lot of heartache.

My credit score changed…what gives?

Credit scores are constantly changing. Factors that impact your score include inquiries, payment history, the age of your credit, types of accounts, credit utilization, and collections. Some of these have little effect on your score; While others, like frequent late payments, can drastically decrease your score. Want to maintain a high credit score? Here’s what we recommend.

·         Always pay your bills on time and at a minimum the amount due.

·         Keep your credit use to 30% or less. That means if you have a credit limit of $10,000, your balance should never go above $3,000.

·         Keep your oldest accounts open and in good standing. Letting your accounts close out lowers your credit age, so beware before closing accounts or allowing your creditors to close them for being inactive.

·         Open and maintain different types of credit. Consider a mortgage, auto loan, credit card, and personal loan for the greatest benefit. This will show a mix of long-term and short-term loans, as well as fixed and variable term credit.

If you have questions about your credit report or improving your credit score, I urge you to contact a Certified Financial Counselor. As luck would have it, we have several on staff ready to help you! Contact one today to have a one-on-one consultation.

Krista Kyte is a personal finance blogger and personal banker with over 18 years of experience in the financial industry. Krista is passionate about helping our members understand their financial situations. She writes tips that help consumers reach and maintain financial security and start living the life they’ve always wanted.