Credit Rating: Frequently Asked Questions
Your credit rating affects whether you can borrow, what you pay to do it, and sometimes whether you can rent an apartment or open a utility account. These answers cover the basics of how credit reports and scores work and what you can do to improve them.
What is the difference between a credit report and a credit score?
A credit report is a record of your borrowing history: accounts you have opened, balances, payment history, and certain public records. A credit score is a number calculated from the information in that report. Lenders look at both, and different scoring models can produce different numbers from the same report.
What factors affect my score?
While the exact formulas are proprietary, the main ingredients are well known:
- Payment history: whether you pay on time is usually the most important factor.
- Amounts owed: especially how much of your available revolving credit you are using.
- Length of credit history: older accounts in good standing help.
- New credit: many recent applications can lower a score temporarily.
- Mix of credit: a blend of installment loans and credit cards can help modestly.
How can I check my credit report?
Federal law gives you the right to free reports from each of the three national credit bureaus. The official source is AnnualCreditReport.com, which is also explained at consumerfinance.gov. Review each report for accounts you do not recognize, wrong balances, and payments marked late that were not.
What should I do if I find an error?
Dispute it in writing with the credit bureau reporting it, and include copies of any supporting documents. The bureau is required to investigate and respond. It also helps to notify the lender that supplied the information. Keep copies of everything you send.
How long does negative information stay on my report?
Most negative items fade over time rather than disappearing at once. Late payments, collections and similar items generally remain for several years, and some bankruptcies remain longer. Their effect on your score usually shrinks as they age and as you add new, positive history.
What is the fastest way to improve my rating?
There is rarely a quick fix, but the steady steps work: pay every bill on time, keep credit card balances well below your limits, avoid opening accounts you do not need, and keep older accounts open when they carry no fee. Be cautious of any company that promises to erase accurate negative information for a fee.
Does checking my own credit hurt my score?
No. Looking at your own report is treated as a soft inquiry and does not lower your score. Applications for new credit are what can create a hard inquiry.
If you are preparing for a loan or want to understand how your finances look to a lender, contact our office and we can talk through your situation.
This article is general information, not tax, legal or investment advice for your specific situation.