Understanding Your Credit Report And History

It is always good to know what goes into your credit score as well as the relevance of each topic and how it relates to the final number.

Factors for determining your credit score may include:


Payment History: Overdue bills or late payments will definitely dent your credit rating.

Budget Management: Lenders always like to see indications that youre not living beyond your means. In general, non-mortgage credit payments each month should not exceed more than fifteen percent of your post-tax income.

Responsibility and Income Stability: Creditors and lenders also love to see that you have been a resident at one address and at one job for extended periods of time (usually two years). They consider it as a sign of financial responsibility and a stable income.

Re-Aging: Via re-aging, your credit history is rewritten, giving you a fresh start on that particular account. This can dramatically improve your credit score, although it may not be a complete wiping of the black board but still a great second chance. In the year 2000, the Federal Financial Institutions Examination Council (FFIEC) clarified guidelines on re-aging accounts for delinquent borrowers.

Credit Cards: Although having too many credit cards can have an adverse effect on your credit score, closing these lines of credit may not improve your score as well. The credit rating formula looks at the difference between the amount of credit a person has and the amount being used. Closing one or more accounts will reduce your available credit, lowering your credit score. The formula also factors in the length of time the credit accounts have been open, so be aware of the age and amount of credit of each account you are closing.

Credit Inquiries: An inquiry is a notation on a credit history file. There are two kinds of notations:

1. "Soft" Credit Inquires:

A credit bureau may sell a person's contact information to an advertiser purchasing a list of people with similar characteristics.

-A creditor can check a person's credit periodically.

-A credit counseling agency, with the client's permission, can obtain a client's credit report with no adverse action.

2. "Hard" Credit Inquires:

When granted a permissible purpose by youthe borrowersuch as extending credit, lenders can check your credit history. Hard inquiries from lenders directly affect the borrower's credit score. Keeping credit inquiries to a minimum can help a person's credit rating. Many inquiries on a person's report can be a signal that you are looking for loans, possibly making you a poor credit risk.

By: Daniel Cho

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Daniel Cho is a financial writer for Select Debt Relief, which specializes in the various forms of Debt Relief including Debt Settlement and Debt Reduction. Currently he studies Business at the University of California at Berkeley.