Understanding Your Credit Report and Credit Score -- Part 1

When you apply for a credit card, car loan, personal loan or mortgage, the lender will want to know your past history of borrowing in order to understand the risk they might be taking by lending you money. The status of your credit score will depend on how good you’ve been in the past at repaying your debts. A bad credit history can affect the credit that’s made available to you or even cause you to be denied credit completely. On the other hand, a healthy credit report and a high credit score can mean better financial options for you. To find out where you stand, a lender will go to a credit reporting agency to get your credit report.

What are Credit Reporting Agencies?

Credit reporting agencies collect an individual’s financial information, compile it into a credit report and, for a fee, make it available to the individual and to other authorized parties, including financial institutions. Generally when you apply for a loan you give the lender permission to get a copy of your credit report. Companies that lend money rely on credit reporting agencies and the credit reports they generate to help them assess a customer’s ability to repay what they borrow.

Although there are many local and regional credit bureaus throughout the United States, most credit bureaus are either owned or under contract to the nation's three major credit reporting agencies: Equifax, Experian (formerly TRW) and TransUnion.

What is a Credit Report?

A credit report is a detailed history of a person’s borrowing habits and consists of the following information:

  • Identifying information such as your name, past and present addresses, date of birth and employment history;
  • Credit accounts, also known as “tradelines”, submitted by lenders who have extended credit to you. This includes the type of account (credit card, auto loan, mortgage, etc.), the date the account was opened, the credit limit or loan amount, the account balance and the payment history;
  • Inquiry Information. Inquiries on the account for the last two years including voluntary inquiries, when you apply for credit or a loan, and involuntary inquiries, when a lender you are not aware of orders your report to see if they want to make you a pre-approved credit offer. There are two types of inquiries that you may find listed in your credit report: “soft” inquiries and “hard” inquiries.

  • “Soft” inquiries may include your own requests for your credit history, inquiries by companies extending you preapproved offers for credit cards, or inquiries made by your current creditors who wish to perform a review of your credit (also known as “account monitoring”). “Soft” inquires are only visible to you and not to potential lenders or creditors.
    “Hard” inquiries occur when a potential lender reviews your credit history because you have applied for credit such as a new loan or credit card. These may remain on your credit report for 24 months. While “hard” inquiries do impact credit scores, “soft” inquiries do not.
  • Public record and collection items including information from state and county courts and collection agencies, and public record information like bankruptcies, foreclosures, lawsuits, wage attachments, liens and judgments.

Next week, we will learn about credit scores.

Whether you just need advice on how to stay on track or could use some help to get back on track, your credit union offers free and confidential financial wellness services to help you achieve your goals. Give us a call at 318-621-0605 or 318-629-5622.

Information reprinted in part from: NY.gov and Equifax

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