Current law allows consumers one free credit report each year. We encourage members, like you, to review your credit report annually. When accessing your report, however, you may find it complicated and not easily understandable. Here’s what you should look for and what it means to your credit.
Your credit report can help you gauge your financial picture from a lender’s perspective. However, more importantly, you should review the entire report for general accuracy. If you see any accounts that you didn’t open or any errors with existing accounts, you should contact the credit bureau to initiate the process to correct them.
Your credit report will show who has been accessing your credit report. These inquiries are categorized as “soft” or “hard.” Soft inquiries are when someone reviews your credit, but hasn’t asked for credit. For example, it’s considered a soft inquiry when you review your credit report annually or a lender receives a change in your credit status in relation to a credit card account. Soft inquiries do not affect your credit score.
Hard inquiries occur when a business has accessed your credit report with the intent to offer credit. For example, you’ll receive a hard inquiry on your report when you apply for a credit card or auto loan. Infrequent hard inquiries don’t normally affect your credit score that much. However, frequent hard inquiries indicate an increasing desire for credit and can adversely affect your credit score. If you see any hard inquiries that you don’t recognize, it may be an indicator that someone is trying to use your credit score or is committing identity theft. In that event, report the inquiry to the credit bureau.
Delinquent payments heavily influence your credit score. If you see that your bills have been paid 30, 60, 90 or 120 days late, that can be very damaging to your score and your future ability to get a loan. The greater the payment delinquency, the more it damages your credit score.
Timing also can be a decisive factor with late payments. For example, how long ago was the late payment? Was the late payment an exception? Have late payments been a regular occurrence? Over time, late payments will become less damaging, providing your recent payment history is consistently satisfactory.
Credit Utilization Ratios and Open Credit Card Accounts
Credit scoring programs also consider your debt-to-credit limit ratio, or utilization of available credit. This ratio compares your existing balances with your available credit limit. The ratio demonstrates to lenders whether or not you are living within your means. Generally a lower ratio has a more beneficial impact on your score. In addition, an excessive number of credit cards and available credit can lower your score. Lenders and credit bureaus want to see responsible spending to show that you can have the available credit, but not necessarily use it.
Accounts that have gone to collection departments or have been written off as a bad debt can stay on your credit report for up to seven years. Lenders will be more reluctant to give a loan to someone who has caused a loss.
Typically, members are aware of adverse credit experiences on their credit report and many are making efforts to pay the obligation through workout agreements or legal proceedings. It is not uncommon, though, for consumers to be unaware of low level or inactive collection activity, for example, a forgotten insurance deductible with an old medical bill. You can start to remedy this type of situation by contacting the creditor.
It’s also increasingly common to see a collection entry on a debt that is not yours. Should you encounter that situation, you must contact the credit bureau and have the entry removed from your report. Unfortunately, identity theft is a growing problem for consumers and makes the need for reviewing your credit report even more important.
Judgments, Liens, Bankruptcies
You’ll find these listings in the public records section of your credit report. These types of events are extremely damaging to your score and can stay on your credit report for up to 10 years. For further information, read more in “What is Bankruptcy?”
You can access your credit report at www.annualcreditreport.com to get started.
If you’re having difficulties repaying a debt or obligation, we recommend speaking to your creditor(s) as soon as possible.
by Chris, Vice President, Lending