There are lots of myths out there about what acutally goes into a credit report.
Our intention with this article is to make very clear what does and doesn't go into your credit report, so that you can figure out how to move toward better credit- at a better interest rate.
One: Basic personal information
First off, the general information you provide about yourself to creditors is provided to the credit bureau, firstly to identify you so that your existing credit report can be correctly identified, and secondly to see if there have been any changes to your situation. This information includes your name, and former names, as well as your address and former addresses. This information is fleshed out a little further by including information that you may nopt even know yourself like geographical code and type of residence. This information is to build out a picture of what type of house you live in as well as what kind of area you live in- i.e. rural, urban suburban etc. This information comes from publicly and commercially available information, and purely serves to help build a more detailed picture of you.
This information is further validated by details like the name of your employers, your SSN (social security number) and some times contact telephone numbers.
Two: Credit Relationship Details
This information often tops the report and starts with any credit agreement you have currently or have had in the past that have not gone quite as planned. This ection includes information on the defaults and collections and the current status of those accounts. Largely this looks at what the arrangement entailed including the credit limit or value of the loan, and what the unpaid amount is/was.
The report obviously also includes details on financial credit agreements you might have that you've been managing successfully and repaying on time. There are details again about the current standing and often a repayment history, the percentage of available credit that you've used with regard to credit cards.
The way credit card debt is looked at is quite different to loans. Given the structured nature of the loan repayments the emphasis on on on-time payment. always. With credit cards, what is looked at in addition is the % of you available credit that you use. Generally speaking, you should only use 60% of your available credit, in order to demonstrate good standing. Going beyond this, gives the appearance that you need credit, rather than use credit cards a s useful payment mechanism. The more you appear to need credit, the more of a credit risk you are. The name of the game in credit is risk. the riskier you are, or appear to be, the higher intrest you pay. It's that simple.
The Credit Reference Agencies & Credit Scores
There are currently only three credit bureaux in America; Equifax, TransUnion and Experian. Each bureau calculates a credit score to effectively summarise your credit risk based upon the contents of your credit report. The reason this is done is simply for scale and speed. If you can imagine for a second that in a given day corporations like Wells Fargo, Chase and Bank of America receive thousands of applications for credit, so making good decisions quickly is the only way to deal with the volume. The credit score is therefore king among the ingredients used in making the lkending decision. It is not by any means the only consideration, but its the only one you can have any short term control over. It's also the only one that really has veto power over the lending decision. If you earn a small fortune, but have a credit-history litered with unpaid debts, you will be very unlikely to get approved for finance in the future. It's a bit of a leveller in that respect. If you manage your debt well, you build up a strong/high credit score. Having a good credit score isn't influence by your income, it is purely down to how you have managed the debt you've had- and so your history dictates your future in a very real way.