3 Important Steps to Take When Evaluating Your Credit Report

All of us want to know what our credit score is before we apply for a new home mortgage, car loan, or other type of financial assistance. However, it can be hard to get the right information when you need it most. To help you out, this blog post gives an overview of some important steps that you should take when evaluating your credit report and understanding your credit score.

3 Important Steps to Take When Evaluating Your Credit Report

1. Make Sure You Are Pulling the Right Report

First of all, it is important that you are looking at the right credit report when trying to determine your credit score. If you have multiple creditors, there’s a chance that each creditor may pull a separate report for their own use. When they do this, it creates an additional pull on your credit in addition to the pull you will do in order to determine your own credit score.

2. Understand Your Credit Score

When applying for a new loan, perhaps the most important number is your credit score. This three-digit number takes into account all of your positive and negative financial activity, including whether or not you regularly make your loan payments on time. The factors that go into this number are as follows:

Payment History – 35%

How often have you been 30 days late or more on a credit account? Have you ever been delinquent by 60 days or more on a credit account? How about if you have any unpaid accounts in collections? This all plays a role in your credit score.

Credit Utilization – 30%

Your credit utilization is a simple calculation of all of your hard credit inquiries and any account balances relative to the limits on the accounts you have open. For example, if you have a $5,000 limit on a card, but you owe $1,000, then your credit utilization is 20%. This number is compared to the industry standards and your credit score will be docked if you are significantly over the standard.

Length of Credit History – 15%

How long have you been using credit? If you have had a bank account for ten years, but only opened a new line of credit one year ago, it sends a warning signal to creditors. They want to know that you have been able to handle your finances responsibly, so they will take this information into account when evaluating your credit score.

New Credit – 10%

How many new lines of credit have opened in the last two years? Some lenders are skittish about potential risk, so if you have opened too many new lines of credit recently, you may have a low credit score.

3. Understand How to Improve Your Credit Score

Once you understand how lenders are viewing your financial activity, it becomes easier for you to improve your credit score. One way to do this is by making sure that all of your accounts are in good standing and that your credit utilization falls under 30%. This gives creditors the confidence to extend you additional lines of credit, because they know that you are able to responsibly manage what you have.

Another way to improve your score is by staying on top of any late payments or delinquent accounts. Sometimes, even if it has been years since an account was delinquent, the negative credit activity can remain on your report. The sooner you are able to pay off any outstanding debt or close an account, the better it will be for your score in the long term.

All of us want to know what our current credit score is before we apply for a loan. However, it can be hard to get that information when you are trying to find out what your credit score is without applying for a loan. This leaves us with two options: either apply for a loan and check your credit, or pay for an online service that will allow you to see your credit score without having to make any sort of commitment. If you are unable to check your credit score through free outlets, it is often best to check your credit score through an online service. These services are offered by reputable companies who have access to your credit report, unlike free outlets which may not be totally accurate.

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