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Helpful Guide to Reading Your Credit Report

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Reading your credit report

Your credit report contains information about your financial history including lines of credit and how you are settling them. It’s advisable to review your credit report at least once a year. This allows you to tell how you fair in the eyes of creditors. It also helps you to come up with ways to fix your report for the better.

That said, understanding the information contained in this report can be difficult, especially for first-timers. To ensure that you don’t miss a thing, here is a guide to reading your credit report.

Credit Report Breakdown

The format of these reports varies depending on the reporting bureau that you get the report from. The information is however similar and is broken down into several fields.

Subscriber or Personal Information- Consumer Demographics

Personal information includes any information that identifies you. Here, you will find your name, address, residence type, geographical code, social security number, current or former employers, date of birth, and telephone numbers.

This field is used to identify you and does not in any way factor in your credit scoring. There could be variations in your name or addresses from different bureau which should not be a cause for concern. You should, however, make sure that each variation (if any) identifies to you and is not a case of identity fraud.

Credit Summary

This section contains your accounts and their balances. It’s a summary of bank accounts including current and delinquent accounts as they have been reported by creditors. This snapshot of your finances includes;

  • Mortgage accounts
  • Credit cards
  • Personal loans; car, student, and other loans apart from mortgages
  • Collection accounts
  • Any other accounts; lines of credit or trades

The accounts’ information captured in this section also touches on the total number of open and closed accounts. Inquiries made on your report for the last two years will also feature as part of the summary.

The credit summary also gives you a quick overview of monthly payments, balances, and past due amounts. The summary will also contain any delinquencies which can be current or previous depending on what your creditor reported.

Account History

This forms the biggest chunk of your credit report. Each account is analyzed in the finest detail. This is where you need to concentrate on weeding out any inconsistencies. Each account is broken down into several fields;

  • Name of creditor
  • Account particulars (number, type, and ownership or responsibility)
  • The highest amount ever owed
  • Maximum credit approved
  • Balance owed
  • Past due amount
  • Monthly payment
  • Available revolving credit
  • Dates opened and date reported
  • Payment status

Account history also contains remarks to explain special conditions pertaining to the account. Remarks can also be from your creditors indicating delinquencies or simply the standing of the account- Open, Negative, or Closed.

You may find some of the information contained in this section not to be up-to-date. This might include balances on credit cards or loans which you expect to be much lower. The reason behind this is that creditors might have reported the balances long before you had made your monthly installments.

Public Records

This is one section that should worry you if it’s highly populated. It contains information from public records pertaining to:

  • Bankruptcies
  • State and court judgments
  • Tax liens
  • Overdue spousal or child support- depends on specific state

Why should this worry you?

This information stays on your credit reports for 7-10 years. If your credit report is clear on this section then it’s advisable to ensure it stays that way!   

Credit Score

Some bureaus will also include your FICO credit scores on the report. This is a 3-figure scoring system that ranges from the lowest, 300 to the highest possible score of 850 points. It determines your creditworthiness in the eyes of creditors. It may also affect your chances of employment or even your rent terms.

Learn how Credit Absolute can help you increase your credit score.

Inquiries

This is a list of parties including institutions that have requested your credit report. Your report will include hard and soft inquiries: Hard inquiries are requests made by creditors after you have authorized them when applying for loans or credit cards. Soft inquiries are the ones made by creditors (without your knowledge) for promotional purposes.

The Take-Away

Credit reports can be difficult to read, leave alone understanding the entries. The above breakdown should guide you in identifying the important details contained in each section. Pro Tip: Be on the lookout for any inconsistencies that may point to errors originating from your creditors, the reporting bureau, or as a result of fraud. Such errors could be lowering your credit score and should be disputed immediately.  

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Credit Score

Personal Credit Scores & Business Loans

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Will Your Personal Credit Score Affect Your Business Loan Application?

Congratulations! You’ve decided to begin the process of applying for a small business loan. This is an exciting time for your new or existing company and could forecast many great things.

If this is your first time applying for a business loan, you might not be aware of the potential barriers that can get in your way. After all, receiving a business loan for your start-up or expansion can be competitive, and banks want to ensure that they trust only the best with their investments. Before you jump all in, you’ll want to have a clear understanding of the things that could qualify or even disqualify you from receiving funding.

Business Credit

One of these factors is your personal credit score.

If you are a small business owner in the United States, the three credit bureaus track two profiles: your personal financial history and your business credit history. Each profile plays a vital role in getting approved for a business loan. However, if your starting a new business or your existing business doesn’t have established business credit, the lender may rely more heavily on your personal creditworthiness when making their lending decision.

While your personal credit score and business credit profile express different information about you and your business, both have a substantial impact on the options available to your business and your ability to qualify for a loan.

Why Lenders Care About Your Personal Credit Score

Some business owners don’t think that their personal credit score has much of an impact when it comes to their organization. This just isn’t the case. A potential creditor is going to consider your personal credit score when making a decision to grant your company a business loan.

In general, a potential lender is going to view your credit score to determine if you:

  • Have the ability to repay the loan?
  • Are going to repay the loan?
  • Will pay the loan even if something unexpected happens?

Lenders see your credit score as an insight into your financial health and responsibility. Unfortunately, if a lender sees that you are not able to manage your personal finances, they may assume that you are a high risk for managing business finances as well. This is especially true if you are a new business owner. Without an established business history or credit to your company’s name, the only way the lender will be able to determine creditworthiness is by accessing your personal credit score.

How is my credit score calculated?

Three primary credit bureaus generate a credit score for lenders to access. Each reporting agency uses the same basic FICO formula to score the information that they collect. They also obtain personal information such as full legal name, date of birth, employment history, address, etc. They also list a summary of information that was provided to them by your creditors. Other information found in public records like bankruptcy or judgments are also included on your credit report and factored into your score. Each time that you apply for credit is also recorded on your report.

There are primary differences in the way that the three credit bureaus review and calculate your personal credit history. For example, Transunion holds more detail about your employment information, Equifax separates your accounts that are open and closed, and Experian will record data like whether or not you are paying your rent and other bills on time. Essentially, these agencies are competitors, and lenders may choose to report to one bureau and not the other. While their data might include different results, their score is typically similar.

Importance of a Good Credit Score For Your Business

While you may not feel that your personal credit history is the best representation of how you will meet and exceed your business’s financial obligations, the need to establish and maintain a positive credit score is vital for every small business owner. Most banks and lenders take a close look at your credit score when they evaluate your worthiness as a business borrower and even consider the score in their decision-making process – regardless of how long your business has been operating.

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How Credit Scores are Affected by Bankruptcy, Foreclosure & More

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Credit Score RangesThere are certainly many things that can negatively impact your credit score, some more than others. If you are worried about your credit or are trying to maintain a good score, it is helpful to know items on your credit report could cause the biggest impact on your score.

Below we’ve outlined four issues that could cause the biggest drop in your credit score. We have also listed the average point loss for each item.

How Much Does a Bankruptcy Lower Your Credit Score?

The higher your starting score, the more points you’ll lose for filing for bankruptcy. For a person with a credit score of 680, filing for bankruptcy will lower your score by 130-150 points. For a person with a score of 780, filing for bankruptcy will cost you 220-240 points.

How Much Does a Foreclosure Lower Your Credit Score?

According to FICO, if your credit score is 680, a foreclosure will drop your credit score on average by 85 to 105 points. If your credit score is excellent, at 780, a foreclosure will drop your score by 140 to 160 points. In other words, the higher your credit score, the more your score will be affected.

How Much Does a Late Payment Lower Your Credit Score?

One late payment could have a more significant impact on higher credit scores. According to FICO data, a 30-day delinquency could cause as much as a 90- to 110-point drop on a FICO Score of 780 for a consumer who has never missed a payment on any credit account.

How Much Does a Car Repossession Lower Your Credit Score?

Having your vehicle repossessed could cause a 100-point drop in your credit score. And late payments, collections, and public records generally all stay on your credit for about seven years, according to myFICO.com.

For most people, the above issues are unavoidable but in certain circumstances, it is a choice to make depending on your financial situation. If you are swimming in debt and are debating filing for bankruptcy, for instance, you may want to consider a few things first. In that scenario, if your credit score is already low due to late payments, high debt-to-income ratio, and delinquent accounts, you could potentially improve your credit quicker by filing for bankruptcy as it would not have as big an impact on your score but would give you the fresh start needed to start rebuilding your credit.

For assistance with credit repair or counseling, contact Credit Absolute.

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Does Leasing a Car Help Your Credit? Learn More About it Here

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A car lease gives you an opportunity to rent a car of your choice for an agreed period. Just like loan repayment, leasing a car requires you to pay monthly installments and is, therefore, a major contributor to your credit history.

So, does leasing a car help build your credit score? The short answer is that, if you make all your payments on time, an auto lease can improve your credit score. Here’s what you need to know about car leases and credit scores:

How Leasing a Car will Help you Build Your Credit Score

Leasing a car to improve creditWhile it is not a requirement, most legit car lenders, and dealers, report your payment activity to the three major credit bureaus: Experian, Equifax, and Transunion.

Once your payments are reported, they become part of your payment history which influences 35% of your credit score.

Below, here are some highlights of what you can do to improve your score during the term of your car lease.

Late or defaulted payments reflect negatively on your credit history. This consequently lowers your credit score. To ensure that you can make your payments every month and do it on time, settle for an affordable monthly payment spread out over a longer period as opposed to higher payments over a shorter period.

  • Check out your Credit Reports Regularly

To understand your current credit health, check your credit reports regularly. By so doing you will be keeping tabs on your debts and any errors that prospective lenders might see on your report.

More importantly, getting the report is the first step towards disputing errors on your lease terms. In such cases, you can raise a dispute with the company responsible for the inaccuracy in time to ensure that your score is not affected negatively.

Besides your car lease, having varying lines of credit reflects on your ability to manage multiple lines of credit. And although a credit mix accounts for only 10% of your score, it can provide a much-needed boost to your score.

With that in mind, it’s worth noting that a car lease is classified as an installment account. This makes a lease different from revolving accounts such as credit and gas station cards.

  • Minimize Credit Card balances

Boosting your score with a car lease would not make sense if you hurt it in other ways. Credit card utilization ratio, or the percentage of the money you are using out of the credit you have available, accounts for 30% of your score.

It is calculated for each of your credit cards and also across all of them. Even as you go for a credit mix, it is paramount to keep your credit utilization ratio at 30% or below.

Keeping old lease accounts open will help your score by increasing the age of your credit, also known as credit history. This accounts for about 10% of your credit score.

Can you Lease a Car with Bad Credit?

Despite the fact that leasing companies mostly consider consumers with good credit, you could improve your odds of getting approved for a lease and get an opportunity to start rebuilding your score. Here’s how:

Make a Down Payment

Making a huge down payment not only shows your commitment to the leasing agreement but it also helps to reduce the overall amount of the lease. This also means lower monthly payments.

Consider a Cosigner

If you are not financially stable, consider asking someone with a positive credit history to co-sign the lease with you. Since both of you share responsibility for the account, it affects both of your credit reports. Good payment history will, therefore, help rebuild your score.

Improve your Debt to Income Ratio

Debt-to-income-ratio is the comparison of how much you owe against how much you earn. A high DTI ratio indicates that you have trouble meeting your debt obligations.

So, before you attempt to get a car lease with bad credit, reduce your DTI. Among the measures, you can employ include getting a second job or clearing credit card debts.

Conclusion

It is apparent that leasing a car can help build your credit score. However, this works hand in hand with your other lines of credit as they together make up your credit report. As such, put all your financial obligations into consideration before you sign a car lease to avoid causing more harm to your score.

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