Your credit report is full of such wonderful information identifying your ability to pay back a debt over a lifetime. Your credit report will include information about you personally such as addresses and employment information. It will also include your social security number, date of birth and should always be checked for errors. It is common to find information entered incorrectly.
The next area of a credit report is credit history which will include exactly that. Your payments whether missed or made on time. Any delinquencies, account closures, charge off’s, and negative items. It will show the amount of debt, when the account was opened, how much the monthly payment is. Also very important that this section is also checked for errors. This is often the best way to find out if your identity has been stolen or if errors have been made in reporting which could have adverse affects on your FICO score.
The next two areas are also very important. The inquiries section is a listing of anyone that has pulled your credit report. This is often completed to determine credit worthiness. These are called hard inquiries and will affect your credit score. Soft inquiries don’t affect your credit and are used by companies who want to send you promotional material such as credit card pre-approval applications. (THROW THEM AWAY)
The final area is the public records section. It is extremely important that this section stays blank. If you have something on here that means you messed up. That’s okay! It happens to the best of us. Bankruptcy’s, tax liens, and judgments are the most common public records found on a credit report. These will have a significant impact on your score and your credit worthiness.
Now scoring can be a little confusing and to understand exactly how they score it is nearly impossible and probably considered a trade secret of some type because I have researched this topic tirelessly for years as an educator and another person in significant debt. What I have learned is this:
1) Payment History makes up 35% of your FICO Score
2) Amount of Debt makes up to 30% of your FICO Score
3) Your Length of Credit History makes up 15% of your FICO Score
4) Amount of new Credit makes up 10% of your FICO Score
5) Your Credit Mix makes up 10% of your FICO Score
I have also learned that there are many different types of scores. There isn’t just one score. First and foremost each and every reporting agency, (Equifax, TransUnion, and Experian)has their own score. These are not commonly used scores but they do sell those scores as a means to help creditors decide worthiness. Over 90% of credit decisions are made using FICO.
FICO Score 8 is your most commonly used FICO Score.
FICO Score 2, 4, and 5 (Experian, TransUnion, Equifax respectively) are the most commonly used scores in Mortgage Lending.
FICO Score 8 and 5 for Equifax, 8 and 4, for TransUnion, and 8 and 2 for Experian are the most commonly used in Auto Lending
FICO Score 8, 3, and 2 for Experian, 8 and 4 for TransUnion, and 8 and 4 for Equifax for Credit Card Lending.
Each of these scores are measured differently and use different information within your report to decide on what score you will have. It is rare at least from experience to see any other score lower than your FICO 8 score which again is the most commonly used score. So monitoring those scores is a best practice. The majority of millionaires know and review their credit and score often.
Every year you are entitled to one free credit report which can usually be obtained online. This report will not include scores. Scores are a paid service which can also be done online and there are many places you can do it. READ THE FINE PRINT!