What You Need to Know About Your Credit Report – PART II

May 9, 2012

Kyle Thompson

Have you ever taken the time to review your credit report and ensure all the information on it is accurate?  Do you know how to improve your score and what actions can have a negative impact on your score?  Did you know you can get a free credit report from all three reporting agencies every year?

Yesterday in Part I, I broke down the main components of your credit report and today continues with Part II of What You Need to Know About Your Credit Report.

There are several things that can have an unfavorable impact on your credit score.  Some of these are:

  1. Late or missed payments
  2. Using more than 80% of your total amount of available credit (ideally, you should use no more than 25% of your available credit).
  3. Bankruptcy, liens, foreclosures
  4. Closing old credit cards can lower your score as the length of credit history accounts for 10% of your score.
  5. Closing cards with available credit can lower your score as your available credit amount is reduced, thus increasing your debt ratio.
  6. Too many frequent requests for new lines of credit
  7. Credit cards or revolving debt is viewed unfavorable as compared to installment loans.

Your credit score is derived using many factors.

  • Payment history = 35%
  • Amounts/Balances owed = 30%
  • Length of credit history = 15%
  • New credit accounts = 10%
  • Types of credit used = 10%

By law, as a consumer you are entitled to one credit report per year by each reporting agency (Equifax, Transunion, and Experian).  Therefore, if you time it correctly, you can pull a credit report every four months throughout the year to track any changes to your credit history.  You could of course pull all three reports at the same time, but it usually makes more sense to spread these out over the year to ensure your report is accurate at various times throughout the year.  To access your report, you will need to go to www.annualcreditreport.com.  There are many sites out there that claim to be free but will actually charge you when you go to view your report.  This is the legal site that governs your free credit reports.  You’ll want to make it a habit of obtaining your credit reports from this site every year.

Following these simple steps and ensuring you are looking at your credit report at least annually will help you quickly identify fraud or errors and also help highlight areas you may be able to improve your score (i.e.timely payments, reduced debt levels, etc.).

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