Understanding how your credit report impacts your finances
Your credit report is a record of your credit history. The state of that report can hugely affect your life, impacting some of your short- and long-term goals. Here are a few examples:
- Lenders look at your credit report to determine if they want to extend credit to you, whether that’s a home loan, an auto loan, a credit card, or a personal loan.
- Insurance companies use your credit report to decide whether to offer you a policy.
- Utility and telephone companies also check your report to determine whether to offer you service.
Additionally, your credit report can determine the rates you’re charged. In other words, your credit report can affect your access to credit and services as well as the amount you may pay for them. So, yeah, it’s pretty important.
What’s in your credit report and how do you read it?
There are three credit bureaus that create credit reports: Equifax, Experian, and TransUnion. Here is a sample report from Experian. Although individual reports may look slightly different, they all have the same basic sections. Let’s take a look at each.
Personal information
Here you will find your name, address, date of birth, phone number, and social security number. This section also includes the name of your spouse or co-applicant, if applicable.
Credit items
This is the core of your report. It lists your credit accounts, documenting details like:
- The account status, noting accounts with missed payments or those sent to a collection agency, plus current accounts in good standing
- Type of account - This could be a credit card, mortgage loan, student loan, or other revolving or installment account
- The creditor’s name
- The amount you owe
- Your credit limit with this account
- Your payment history
- The account’s open and close date
Public records
This section will list things like foreclosures and bankruptcies as well as court judgments that resulted in liens against your property. It can also include other items, like overdue child support payments.
Negative credit information can stay on your credit report for up to 7 years. Personal bankruptcy information may remain for 10 years. And any criminal convictions could be listed indefinitely.
Soft and hard inquiries
The inquiries section details the occasions that anyone has accessed your report. They are sometimes referred to as credit pulls. There are two types of credit inquiries.
- Soft inquiries - These are inquiries that don’t affect your creditworthiness. When you check your credit, it is a soft inquiry. Other soft inquiries can come from potential employers, your current creditors doing occasional reviews or other companies requesting an initial check on your report to send pre-approved offers for which you qualify.
- Hard inquiries - Hard inquiries do affect your credit report. They are initiated when you apply for most credit and services, from a loan to a credit card to a mobile phone contract. Your credit score can take a small, temporary hit due to a hard inquiry – approximately 5 to 7 points. Hard inquiries should fall off your report after two years.
How to access your credit report
You can get a free copy of your credit report from each of the three credit bureaus once per year. It’s a good practice to review your report annually to make sure the information is accurate. Get started at annualcreditreport.com or call (877) 322-8228.
Find more information about your free credit report in this blog from the Consumer Financial Protection Bureau. Also, download their handy checklist to use when reviewing your credit report.
Better understanding your credit is key to building a brighter financial future. If you’d like to learn more about taking control of your credit, check out our other blogs. And as always, the First Federal team is here to help; just call us at (816) 241.7800.
