Getting Your Credit Report and Understanding What's On It

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Getting Your Credit Report and Understanding What's On It
By Randy Ray

If you intend to apply for a loan, you need to obtain your credit score. Understanding what this score means will allow you to make the loan process easier and quicker. Let's face it; most people want the loan process to be as painless as possible. Obtaining and understanding your credit score will help you see potential problems and perhaps eliminate them before you begin the loan process.

There are three different Credit Bureaus from which you can obtain your credit score. These are Experian, Equifax and Trans Union. Each of these companies applies a different formula in figuring your credit rating, though these formulas are weighted so a score from one company is equivalent to the same number score from the others. Because these three firms coordinate their credit rating system through the Fair Isaac Company, the credit score is known as a FICO score. Particular loan companies might look at your salary or the stability of your current employment, but the FICO score usually provides a good understanding of a person's credit standing.

Your FICO score is based on your credit report, which is a combination of your current credit accounts and your long term credit history. The past two years is by far the most important part of your credit history. Usually, a bad spot on your credit record will disappear once the twenty-four month window has closes on it. Your credit rating can range anywhere from 375 to 900, but most scores are in the 600-700 range.

650 or more. This is considered the magic number, and if you score 650 or higher, then you have excellent credit. If your credit rating is 650 or above, acquiring loans should be relatively easy and your interest rates should be to your liking.

Between 620 and 650. This is where most people stand and means you will be able to obtain reasonable loans and rates of interest, though the process might be a little slower and you might have to answer a few more questions.

Below 620. This doesn't mean you cannot get a loan. But it does mean the loan process will be longer, less pleasant and with more strings attached. Understanding this fact about your credit score will help prepare you when obtaining a loan.

If you find a discrepancy in a credit report, you need to address your concern to the appropriate credit bureau. If you can give a reasonable explanation for the mistake or, better yet, if you can provide documentation to contradict the discrepancy, you can have your credit report changed. Usually, all three credit bureaus will not make the same mistake and your FICO score will be correct. I would suggest not inquiring about your credit score too often, because each inquiry goes on your credit record and the appearance of concern can affect your credit score.

Finally, remember that the number of the FICO score is not important in itself. Each creditor will have different credit rating cutoffs, so a firm understanding of your potential creditor's credit score guidelines will help you understand the real implications of your credit score.

You can read more about credit and debt issues at the Debt Consolidation Blog.

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