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Jun 23

Understanding Credit Reports and Scores

Understanding credit reports and credit scores

These days we’re hearing a lot about credit reports and credit scores. Technology has given rise to many online banks and credit services. You don’t know them and they don’t know you. That leaves plenty of room for fraud. Technology has made our personal financial information much more convenient for us to access, but it has also made it easier for criminals to access.

Routinely checking your credit report is one way you can take control of your financial security. Understanding your credit score, and what impacts it is another way to feel secure about your financial future. Let’s walk through a few important points to understand about credit.

What is my credit report?

Your credit report is a detailed report of financial information about you. Generally, it is information from the last 7 years, although liens and bankruptcies can sometimes stay on your report as long as 15 years. A credit report will show your payment history, requests for credit scores, and other financial information. It will also disclose public records like tax liens, judgments, or bankruptcies.

What is my credit score?

Your credit score is a 3-digit number calculated from information contained within your credit report. The information is obtained from the three major credit bureaus: TransUnion, Equifax and Experian. Your score determines your likelihood to successfully repay credit issued to you by reviewing the information in your credit report.

What is a good credit score?

Generally, credit scores are on a range from 300-850 and fall into these broad categories:

300-629 = bad
630 – 689 = fair
690 – 719 = good
720-850 = excellent

Each creditor has their own system for analyzing credit and a low score doesn’t necessarily mean you won’t get a loan. However, the better your credit score, the more likely you are to get a loan and to get a better interest rate on the loan.

What impacts my credit score?

  • Paying bills on time every time.
  • How much you owe – credit utilization is calculated by dividing your total credit card balances by your total credit card limit. If you’re using more than 30% of your available balance, your lender may view that negatively and be concerned that you won’t be able to pay back your loan or credit card balance.
  • Having credit extended to you for a long period of time shows you can manage your accounts and not have them shut down by the creditors.
  • A good mix of both installment loans (student loans, mortgages, car loans) and lines of credit (credit cards) shows creditors you can manage various types of credit.
  • Avoid opening multiple lines of credit in a short period of time as it may be an indicator of financial difficulty.

How do I access my credit report?

Free credit reports are available to you once every 12 months at annualcreditreport.com. You should take advantage of this annual opportunity to review your credit report for errors that could impact your credit score; and for fraud, which could indicate identity theft.

The best way to build a positive credit history and excellent credit score is to work closely with a local bank you trust. Homewood Federal Savings Bank knows you and wants to see your financial security protected. Visit your local banker today to learn more about credit scores and your loan options.