You know that your credit is an important part of your finances. That means you should know the basics of your credit report so you can better manage your money.
Readers often ask me questions about credit, and how a credit report can impact their finances. If you are going to better manage your money, you need to factor your credit into the situation. Here are a few things to keep in mind about your credit report, and how it works:
Your Credit Report Influences Your Credit Score
One of the most important numbers associated with your finances is your credit score. Lenders use it to figure whether or not you are eligible for loans. If you are approved for a loan, your credit score is used to determine what interest rate you will receive. A good credit rating can mean a saves of thousands of dollars on a loan.
Your credit report influences your credit score because the information contained in it is used in mathematical calculations to obtain your score. The information on your report is categorized, assigned numeric values and then fed into a formula that determines your credit score. If your credit report reflects accurate information, your credit score is likely to be reasonably accurate.
It’s a good idea to know what is on your credit report so that you know how to fix problems and stay ahead of the situation. Pay attention to the actions that are likely to impact your credit a great deal – such as making payments on time – so that your credit report is a reflection of your good financial habits.
Negative Information Can Remain on Your Credit Report for Years
The information reported in your credit file can impact you long after the fact. A handy infographic from Experian shows how long different items can remain on your credit report:
As you can see, some of the information can remain on your report for up to 10 years. Other information, such as payment activity on open accounts, can remain on your credit report as long as it is open and active. While that can be helpful in terms of showing a longer history of credit use (which can be positive for your credit score, especially when combined with a history of paying your bills on time), it is something to keep in mind.
It’s also important to understand that when you apply for credit – a “hard” inquiry as opposed to a “soft” inquiry – that information can remain on your credit report for up to 25 months. Pay attention to the actions that you are taking with your credit and be aware of the consequences. You don’t want your poor habits from two or three years ago to drag you down when you apply for a mortgage this year.
You Can See What’s In Your Credit Report for Free
Because it is important to know what’s in your credit report, it’s good to know that you can see what’s in there for free. There are consumer credit sites that will let you view some of the information in your credit report for free. You can also get an overview from some credit card issuers. Check your cardmember benefits or log into your online account to see what’s offered. You are entitled to one free credit report from each of the the three credit reporting agencies for free each year by going to AnnualCreditReport.com. Additionally, if you do apply for credit and an adverse action is the result, you are entitled to a report from the company used to make the credit decision.
Being able to see what’s in your credit report and verify that it is correct information is vital. If someone has opened a fraudulent account in your name, you need to be able to catch it and engage in damage control. You can also dispute reporting errors on your report, since those types of errors have the potential to damage your score.
Your credit report is an important part of your finances. Understand it, and you’ll be better able to manage your money more effectively and avoid the pitfalls that come when you aren’t knowledgeable about where you stand.
This blog post was written as part of a sponsored program for ConsumerInfo.com, Inc., an Experian Company. All views expressed are entirely my own and were not influenced or directed by Experian. This article is provided for general guidance and information. It is not intended as, nor should it be construed to be, legal, financial or other professional advice. Please consult with your attorney or financial advisor to discuss any legal or financial issues involved with credit decisions.