What is a credit report?

Credit report is nothing but a statistical compilation of your credit history. Any kind of credit issued in your name, be it a bank loan, a personal loan or a purchase with a credit card. Credit reporting agencies collect your credit information from lenders. This includes information in public records like bankruptcy.

Information is summarized in the following manner:

  • Date of opening of account
  • Total debt
  • Consistency of payment of debt
  • Number of times credit limit has been exceeded
  • Sometimes, mobile phone or internet accounts might get reported too. These are, however, not considered as credit accounts.

Any savings account closed due to fraud committed by the account holder is included in credit reports.


What is meant by the term ‘Credit Score’?

Credit Score is a numeric grade assigned to borrowers on the basis of their credit history. Credit scores can be derived using several different models. FICO credit score is the most popular and conventional method of calculating credit score. Other models like VantageScores are also used. If certain things hint that you have difficulty in managing credit, then your credit score falls.

Credit Score generally varies from 300 to 850. The higher the score, the better are the chances for you to get best interest rates.

Credit Score is cumulative and changes over time as per your credit history.

How a credit score is used is at the sole discretion of the lender. But it is always safe to keep a good credit score of over 720 (for FICO).

It is also important to note which model has been used for calculating the credit score.

Reading your Credit Report

A credit report is divided into 5 simple categories. They are listed as follows:

  1. Payment History: A brief history on payment of the credit. Consistent and timely payments help increase your score. Late, delinquent payments and records of bankruptcy can hamper the credit score. This category generally has the highest weightage.
  2. Net Amount Owed: The sum of your debts also forms a part of your credit report. Debt to credit ratio is very important. Lower the ratio, higher the credit score. Hence having a high credit limit and low balance can help increase your credit score.
  3. Length of credit history: The total period of credit history is a vital factor. But whether this helps your score or lowers it depends upon how well you have managed it throughout this period.
  4. New credit and mix of credit: A good mix of credit can boost the credit score. Your credit score takes a beating if too much credit is availed.

Credit scored received is different from one used by lender

This is often the case. The credit score that you receive doesn’t necessarily have to be the same as the one used by the lender even though both may have derived the scores from the same information using the exact same credit records. This is because the model used for deriving the credit score may vary. There are several different models that give different weightages to different categories in the credit report. The FICO model treats all credit as equal. The VantageScore model treats mortgage credits with greater weightage.

Rectification of error in credit report

It is always advised that you check your credit report at least once a year. If you think that something is wrong or inaccurate in your report, you can always challenge it legally. Credit Reporting agencies rectify such error for zero cost. Things to look out for are errors in personal information, wrong mailing address or date of birth. Sometimes timely payments can be incorrectly shown as late. Sometimes your credit report may include accounts that you do not hold. This indicates that someone might be abusing your identity.

It is very important to rectify these errors as soon as possible. This is because such errors wrongly influence your credit score. Thus, lenders will have a wrong impression and you may be deprived of the best interest rates. Small errors in personal information may also lead to difficulties in acquiring credit.

What cannot be changed legally is accurate and correct information regarding a credit account. Having said this, many credit repair companies claim that they can wipe a bad credit history. This is not possible legally. Moreover, the fee charged by such companies can be exorbitant.

Your credit report is available online and is updated after every twelve months. You can get a copy of your credit report for free. Always keep a track of your credit report and credit score in order to keep them error free and maintain your credibility. Maintaining good credit can lead to your financial well-being. Always remember that a bad credit history is not permanent. It can be healed.

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