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UNDERSTANDING CREDIT REPORTS AND CREDIT SCORES
By Alan Tom
Britepaths Board Director
Compared to the everyday stresses of life, credit reports and credit scores may seem like one of the lower items on your to-do list, but they are essential for obtaining credit. When you seek to apply for a credit card, secure a car loan, or qualify for a mortgage, lenders are looking to your credit report and credit score to determine your creditworthiness or whether you're an excellent candidate to receive a loan.
This doesn’t have to be a scary, foreign concept, so let’s see if we can break it down and provide some helpful background and guidelines to increase your chances of obtaining credit.
What are a credit report and a credit score?
Your credit report summarizes all of the loans or credit you’ve received over your lifetime from each credit agency: What you’ve received, how much credit you received, whether you paid on time and the amount of your outstanding balances.
Your credit score is a number that provides lenders (and you) with your rating to determine if credit should be provided, the appropriate level, and the relevant terms.
Know what is in your credit report.
Your credit report may contain errors that negatively impact your credit score. In that case, you’ll need to speak with each agency, clarify the situation and ultimately have them reflect the correct facts in your credit report. If there is an error in these reports, call them and have them fix it! This can take time and patience and calls and emails to the credit provider, but, trust me, it is worth it and will help increase your score.
The simple 1-2-3s of credit reports and credit scores are:
1. Never take on more debt than you can handle.
2. Be sure to always make your debt payments, such as monthly credit card bills, car loan payments, and monthly mortgage payments, on time.
3. Find a tool that works for you to help you pay on time. This might include setting up calendar alerts or scheduling automatic payments.
The FEC Can Help You Get Started!
Lenders ultimately care about your ability to pay your obligations in full and on time. The Financial Empowerment Center can help with free access to financial empowerment programs.
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