You do know that you have more than one credit report, don’t you? If you didn’t know this, you actually have three. This is because there are three credit reporting bureaus –Experian, Equifax and TransUnion. While all three tend to get information from the same sources, they each have their own way of reporting the information and even the way they calculate your credit score. Despite this, there are items that could appear on any or all of your credit reports that you need to watch out for.
The two kinds of inquiries
About 10% of your credit score is based on the number of times that people have inquired about your credit report. There are two types of these inquiries – hard and soft. Soft inquiries are those where credit providers have inquired about your credit in order to make you a “pre-approved” offer. As a rule, these don’t count much against your credit score. Hard inquiries or those where you applied for new credit are items to watch out for. The reason for this is because every time a credit bureau sees a hard inquiry, your credit score will likely take a small hit.
Accounts you closed or never opened
You should watch out for credit accounts that you never opened or that you closed. If a sufficient amount of time has gone by since you closed an account, this should show up on your credit report. A quick glance at your report should tell you that the account or accounts have been closed and that the dates are correct. If you find an account you had closed was still reported as open, you will need to contact your lender to find out why.
Bankruptcies, liens and judgments
You should certainly know if you’ve had a bankruptcy, a judgment or a lien filed against you. However, in this day and age of identity theft you could be stuck if someone else is using your identity or if an unscrupulous debt collector has gotten a judgment against you without having properly notified you. You need to scan your report looking for the “public records” section. If you find information about a judgment, lien or bankruptcy you know wasn’t yours, you’ll have to take immediate action to get it deleted from your credit file.
Have you had an account go into collection or that has been written off or charged off? If so, you probably know about it. But there are cases where these have been erroneously reported. If you find such an item, you need to immediately dispute it and have it removed from your credit report. If it’s a very old debt, you should check the statute of limitations in your state as it may have expired so that no collection agency could sue you over it.
A high debt debt-to-credit ratio
Another important factor in your credit score is your debt-to-credit ratio. This is a percentage that reflects the difference between the total amount of credit you have available and the total amount you’ve used. Suppose you have $5000 in credit available and have used $1000 of it. In this case, you would have a 20% debt-to-credit ratio, which is very acceptable. On the other hand, if your credit ratio was higher than 35%, this could be a problem.
A second formula
A second formula used in this scoring will look at your debt-to-credit limit another way. It will calculate the total of all your debts on revolving accounts versus the total amount of credit available on the same accounts. This means that if you were to have four cards that each had a $5000 line of credit (a total of $20,000 in credit) and a $2000 balance on two of them but no balance on the others, your ratio would be 10%. Most financial experts say that the ideal debt-to-credit ratio is 10% or less but you would certainly want to keep your ratio to less than 40%.