Whenever you make a credit card or installment loan payment your creditor notifies the three major credit bureaus. If you made the payment on time, the transaction is coded as satisfactory. If you paid late, you’ll have what is called a negative mark attached to your credit report. In the past, if a company wanted to check your credit, their only method was to access your report. Depending upon your age and your use of credit, that report could have been 4 to 6 pages or more in length. In order to determine your loan eligibility, a loan officer would have had to physically read your report and make interpretations as to your general credit worthiness.
In order to speed the credit review process, a company called Fair Isaac developed a process to calculate a credit score for every consumer who had a credit report. Fair Isaac uses a very secret algorithm that takes into consideration numerous factors, weights them, and ultimately produces a three digit number called the FICO score. Now, lenders can avoid the tedious process of credit report analysis since many primarily use the FICO score to quality loan applicants.
Your Credit Report is Still Important
Without a credit report, however, there would be no credit scores. FICO, and the various other scoring systems that have appeared, like the Vantage score and Experian’s PLUS, are derived from your credit report. Your credit score is calculated from the raw information that your creditors voluntarily provide to the credit bureaus. If there are any negative marks against your credit, your score will suffer unless you fix the errors. This is why it is critical to view your credit report regularly.
Find Your Report
There are many sites that will allow you to see your credit report, but many of them will charge for the service. A federal law was passed a few years ago that made it mandatory for the three credit bureaus to let you access and print your report free of charge every 12 months. The three major credit bureaus set up a site, https://www.annualcreditreport.com, where you can find your credit report. You’ll have to take the time to fill out detailed information, and your identity will be verified. After that, you’ll be able see everything that’s on your individual credit report, and, at the same time, you’ll be able to challenge any entries you feel are incorrect.
What About My Score?
The laws pertaining to credit scores have changed also. In the past, you could only see your score if you applied for credit and if the creditor agreed to share the score with you. Now, you have the right to view your score free of charge, if you have been denied credit. It’s even easier, though if you just go to Credit Karma, https://www.creditkarma.com/. This is a free service, but you’ll have to be careful not to inadvertently sign up for the many promotions offered on the site.
Is Anything Else Affected By My Score?
When credit reports were the only way to view a potential customer’s credit history, insurance companies and employers didn’t usually bother to go through the process. Now, with the almost universal acceptance of credit scores, insurance companies have begun to check scores and assign higher risk factors to those who have lower scores. Obviously, higher risk means a higher insurance premium.
In addition, some employers have also begun to check credit scores, and many applicants have been eliminated because of credit problems. The facts in this CNN article are still valid today.
While credit scores unfortunately determine more than just your ability to borrow money, a score alone cannot be fixed without repair of the underlying problems in your credit report. Take the time each year to review your report and correct any errors. If you have a substandard score because of your credit behavior, try to make all payments on time and attempt to lower your total debt amount. If you do stay current on all of your obligations, and if you’re able to reduce your debt load, you’ll eventually see your score improve.