One of the most important things to do regarding one’s finances is to pull your credit report periodically. Learning how your credit usage and payment history impacts your credit score can help you keep your credit score as high as possible. Understanding the factors that can lower your credit score can help you set financial goals.
You can get a free credit report at www.annualcreditreport.com. You are entitled by law to a free credit report each year from each of the 3 major credit bureaus Experian, Equifax and Transunion.
When reviewing your credit report, pay close attention to these five areas of information to make sure your score isn’t being adversely affected:
What You’ll Find When You Pull Your Credit
Check your full name and any variations, your spouse’s name, birth date, Social Security number, current and past addresses. If there are misspellings or an incorrect address, these items might have been listed when a lender reported the data inaccurately, and can be corrected. It is important to correct these items especially if you have a more common name as creditors of another person with a similar name, even a relative, may wrongly report their information on your credit report.
Each of your active accounts, such as mortgage loans and credit cards, will be listed along with the date the account was open when you pull your credit. They will appear as “in good standing” if you’re current on your payments, or “delinquent” if you haven’t paid your full monthly payment due or even show late payments from previous months or years. This information can remain on your credit report for up to 7 years.
Closed and inactive lines of credit frequently still appear on your credit report. These items will stay on your credit report for different lengths of time but also up to 7 years.
Hard Inquiries occur when a lender checks your credit as part of the approval process. Having too many hard inquiries could mean that you are overextending yourself which could potentially lower your score. Furthermore, hard inquiries are the result of you requesting additional lines of credit from a lender. If you didn’t authorize the inquiry, this could be a sign of identity theft.
Soft Inquiries are typically made by companies that want to check your credit score to make a decision to market to you their line of credit such as credit card companies, retailers, and car dealers or manufacturers. These soft inquiries do not affect your credit score.
Negative or Derogatory Accounts
When you pull your credit you might see items such as past due accounts, bankruptcies, foreclosures, judgments, charge offs, late payments, tax liens and more. They will almost always appear on a credit report and are typically in a separate section on the report. These items can drop your credit score significantly. Time will lessen the impact these items have on your credit score as they can appear up to 7 years, or in the case of a bankruptcy 10 years. However, this is where going through the credit repair process and leveraging your rights under the Fair Credit Reporting Act may help.