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Understanding Credit Reports


Understanding Credit Reports

A credit report is an important document because it can determine our ability to obtain credit. This will be used by creditors, along with your 3 bureau credit scores, to determine your creditworthiness. It is beneficial to understand what these credit reports involve, so that you can view your situation through the eyes of lender. You have the right to ask to see your credit report, and there are some good reasons for why you might want to do this.


How to Find the Best Credit Report and Credit Monitoring Services

Here are a few things to consider when looking for the best credit reports companies to get all 3 credit scores: There are many agencies offering free credit reports, but there will usually be limits on how many free reports you can get:


  • It is important to keep in mind that an agency might only be offering one type of report. This could be a problem if a potential creditor is going to be using a different type of report.

  • It is recommended, when you conduct a credit check, to find a service that provides all three credit scores (Equifax, Experian and TransUnion).

  • If it is important for you to keep an eye on your credit rating, it may be worth choosing a paid service. Especially finding a service that offers credit monitoring. The benefit of this option is that it will usually mean that you will be provided with different scores for the different system, as well as be able to get consistent reports on what is happening to your credit – on a monthly or quarterly basis.

  • Be cautious of scam website that offer free credit reports, as this offer can be a way to trap you into revealing personal information.


The Importance of Checking Your Credit Report and Credit Score

There are a number of important reasons for why you want to check your credit report and credit score such as:


  • There may be information in the credit report that you feel is false – for example, there may be a comment from your bank saying that you were late on a payment. If you feel that any information is false, you will be able to dispute it.

  • Checking your credit report and credit score will mean that you will be able to discover your creditworthiness. This is important to know if you plan to look for credit. You will be able to see if your credit history shows bankruptcy, a court judgment, or foreclosure. This information should only be part of your credit history for a set period of time.

  • If somebody has stolen your identity, you may find evidence of this in your credit report.


Credit Reports

The easiest way to explain a credit report would be to say that this is a document that contains information about your credit history. It will usually include every line of credit that you have obtained – even things like mobile phone contracts. This report will not only contain information about your credit history but also your track record for making repayments. Potential lenders will be interested in seeing this report because it helps them come to a decision in regards to your creditworthiness. If they are not happy with your credit report, they may use this as a reason to refuse you credit or to charge you a higher interest rate.


Credit Scoring

Your credit score is a number that is used to represent your creditworthiness. This number is determined by giving a score to certain variables in your credit history. The higher your credit score, the easier it will be for you to obtain credit, and it will usually mean that you pay a lower interest rate.


The Difference Between a Credit Report and a Credit Score

A credit report will contain a great deal more information about your credit history than a credit score. It will show your record for making payments, and it will have additional information such as the number of times there have been queries about your credit history. The credit score is usually provided as part of a credit report. It is an easy way for creditors to quickly determine your creditworthiness.


FICO Credit Score

FICO is the most commonly used credit scoring system used in the United States. The score is determined based on five variables:

  • Amount of money you owe

  • Types of credit you have obtained

  • New credit you have obtained

  • Length of credit history

  • Payment history – this accounts for 35 per cent of your overall score.


Your FICO score can indicate the following:

  • Less than 640 – this is a very low score, and it will mean that you will struggle to get credit, and you will probably have to pay high interest rates when you do get credit.

  • 641 to 680 – This is a reasonable score, but you will probably have to pay higher than average interest rates.

  • 681 to 720 – this is a good score, and you should easily find lines of credit and be able to get attractive interest rates.

  • Above 721 – you have an excellent credit score, and creditors will want you as a customer. You should have no difficulty obtaining a good interest rate.


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