What’s in your credit report — and why does it matter?
article by
Better Money Habits®
A credit report is a snapshot of your financial life. Lenders, employers, insurers and landlords can make decisions based on the contents of your report, and that information also determines your credit score. Knowing how to read and use your credit report prepares you to better manage your credit. You’ll be able to make sure the information is accurate. And you can reduce the chance of an unpleasant surprise when you apply for a loan.
What is a credit report?
A credit report shows your loans, credit cards and payment history, as well as whether you’ve filed for bankruptcy. The three major credit bureaus—Experian, Equifax and TransUnion—collect information from public records and companies you do business with and use that information to create your report.
How do you obtain a credit report?
You might be able to get your credit report for free from your financial institution or credit card issuer, or you may have to pay to get it. Also, your credit report must be given to you free of charge once a year by each of the major credit bureaus if you ask for it. It’s important to check your reports from all three bureaus because they may contain slightly different information. That’s three opportunities a year to make sure the information kept on you and your credit is accurate—and to ensure that no one is fraudulently opening accounts in your name.
You’re also entitled to a free report if you apply for a credit card or loan and are declined.
What’s the difference between a credit report and a credit score?
Your credit report is a history of your accounts and payments. Your credit score is a number generated from the details of your credit report. FICO, a company that provides credit scores, digs into those details and weights them by importance to calculate FICO® Scores. Scores generally range from 300 to 850. The higher the number, the better your credit. Ultimately, lenders can look at your credit report and credit score when deciding whether to lend you money, so paying attention to both is important.
What should you look for in a report?
First, make sure all of your personal information is correct. Then zero in on your credit history, especially the subsection called “adverse accounts.” It can show negative items like a past-due credit account or a debt that was sent to collections, which can hurt your credit.
You may find errors in this section that you’ll want to correct. Reach out first to the creditor and then to the credit bureaus. The Consumer Financial Protection Bureau, a federal agency, has a guide for disputing errors, including sample letters.
If an error looks fraudulent—for example, you see a mortgage for a house you don’t own—act quickly. Contact the credit bureaus and ask them to put a fraud alert on your account.
How can a credit report help over time?
Good credit can set you up for other financial successes. For example, you may be more likely to receive a loan or you may qualify for a lower interest rate, which can save you money in the long run. A clean credit report—and its positive effect on your credit score—can make it easier to get rewards credit cards, which offer perks, such as travel deals or cash back. And you may qualify for higher credit limits on your cards.
article by
Better Money Habits®
5 ways to improve your credit score
article by
Better Money Habits®
KEY TAKEAWAYS
- Your payment history plays a large role in determining your credit score
- Try to keep your balances below 30 percent of your total available credit
- Keeping older credit cards open can improve your credit health
- Check your credit report at least once a year
You probably know a higher credit score can make it easier for you to get a loan or borrow at more favorable rates. But how can you improve your credit score? Here are five credit-boosting tips.
1. Pay your bills on time
Why it matters
Your payment history makes up the largest part—35 percent—of your credit score. Even small slip-ups can lower your score by a lot. Late or missed payments stay on your credit report—and can affect your credit score—for up to seven years.
How to boost your score
Always make at least the minimum payment by the due date. You can set up payment reminders and automatic payments within your accounts so you never accidentally miss a due date. Just make sure you have enough money in your accounts to cover your bills. Also, check your credit reports at least once a year and correct any inaccurate information.
2. Keep your balances low
Why it matters
The second most important factor in determining your credit score is how much of your available credit you’re using. That’s called the credit utilization rate. If the rate is high—meaning, you’re close to hitting your credit limits—lenders may view you as more likely to default.
How to boost your score
Having credit cards and using them isn’t a bad thing, but it’s important to keep your debt manageable. The best practice is to pay your credit card bills in full every month. If you can’t, pay as much as possible. Try to keep your credit utilization rate below 30 percent. That means if you have a credit card with a $10,000 limit, the balance should be less than $3,000. Also, make sure you understand how credit limits work.
3. Don’t close old accounts
Why it matters
Your score considers the length of your credit history, along with the ages of your different accounts. In general, a longer credit history means a higher score. If you close old cards, you are lowering the average age of your accounts. When you last used your cards is another factor in your score. Even if you intend to keep an old account, your credit card issuer may close it if it hasn’t been used for a long time.
How to boost your score
Keep older credit cards active, even if you don’t need them. Consider putting small, recurring purchases on them, such as streaming service subscriptions. Then set up payment reminders or automatic payments to make sure you pay off the balances on time. Also, think twice before opening new accounts, since they lower your average account age.
4. Have a mix of loans
Why it matters
Lenders like to see that you can manage multiple loans at the same time. In general, it’s good to have a mix of credit cards and installment loans—such as a mortgage, an auto loan and student loans—that you pay on time.
How to boost your score
This is a relatively small part of a credit score, so it probably isn’t effective to open new accounts just to try to pump up your score. But know what types of loans you have and consider improving the mix the next time you need to borrow money.
5. Think before taking on new credit
Why it matters
Getting a new credit card can both help and hurt your credit score, so it’s important to be strategic. Research shows that people who open several credit accounts in a short period may be higher credit risks than those who don’t, according to FICO, the leading credit score provider. When you apply for a new credit card, your credit score could fall initially because the lender looks at your credit report (known as a hard credit check) and the average age of your accounts is lower.
How to boost your score
Open new accounts sparingly and avoid doing it at all if you’re about to seek a mortgage or other major loan. If you get a new credit card, try not to use it much. That way, you’re using less of your available credit, which could improve your credit health. And if your credit history is limited, a new card could help improve your score, as long as you pay on time and don’t take on too much debt.
If you always pay on time and handle credit responsibly, you’re already on the right track. Learn more about your credit score and how it’s calculated so you can better manage your financial life. You can also sign up for a credit tracking service that monitors your score. Some banks and card companies offer this service for free.
article by
Better Money Habits®
Disclaimer
The material provided on this website is for informational use only and is not intended for financial or investment advice. Bank of America Corporation and/or its affiliates assume no liability for any loss or damage resulting for one’s reliance on the material provided. Please also note that such material is not updated regularly and that some of the information may not therefore be current. Consult with your own financial professional when making decisions regarding your financial or investment management. ©2024 Bank of America Corporation.
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