Information Contained in Your Credit Report Can Help You Become Debt-Free

Some people tend to get a little queasy when mentioning their credit score and report; this is especially true if they are aware of negative information contained in it. However, everyone should have knowledge of what is in their report as part of a long-standing debt management program.

TransUnion, Equifax and Experian are the three credit reporting agencies used by creditors, and each may contain different information that may or may not be accurate. Each year, you should request your free copy from these agencies to closely examine the information within them.

Your reports will contain information about nearly every account, credit card, auto loan or home loan you have held in the past. Collections, liens, student loans and owed taxes may also be included.

When you first receive your credit reports, you need to go through them with a fine-toothed comb to ensure all information is correct. You’ll want to look at the payment history recorded, current balances/overdue amounts, and keep an eye out for accounts you were not aware of.

Accounts filed on your report that are not yours are the first indication of identity theft, and need to be dealt with immediately. This is why it’s a good idea to monitor your credit reports on a regular basis. Identity theft can ruin your credit score, cause you to owe debt that is not yours, and keep you from getting much-needed loans in the future.

You will also notice that your address and other personal identifying information will be included on the reports. Any incorrect information in this area may lend clues to mistakes on your report as well.

Making a list of all incorrect information on your report is the first step to creating a personal debt management program. You should immediately submit a written dispute for each incorrect piece of information on your reports, and send them to each corresponding agency. If this information is not validated by the debtor within a 30-day period, the agency is required to remove it from your credit report.

Next, in order to significantly raise your credit score, you’ll want to create a personal debt management solution by highlighting collections, judgments, liens and current credit card debt and other debt. Start by contacting the collection agencies and ask for a settlement on the old debt.

After old unpaid debts are eliminated, determine how much in extra funds you will be able to apply toward outstanding credit cards and loans. Unsecured debts should be paid down or off before seeking additional credit lines from your bank or other financial institution.

Put this extra amount of money toward the highest interest rate loan or credit card first, until it is paid off; then, move to the next highest rate. Any creditors reporting your history as late should be addressed immediately as well.

Understanding your credit report and maintaining awareness of what creditors report is the first step in creating any personal debt management program. You must be aware of what’s included in your reports before pursuing additional credit for any purchase; this allows for the best possible rate and terms available.

Your credit score ratings are very essential – and you need to check your credit report to make sure that the information in it is correct. You can get all three credit reports and get free credit score online – so your credit rating score is only a click away.

Why Is Your FICO Score Important?

When keeping track of your budget, saving as you should, and handling money responsibly still doesn’t qualify you for a much-needed loan, you probably need to take a look at your FICO score. This number reflects your creditworthiness, and can greatly influence your debt management program.

Fair Isaac Corporation founded the FICO score and the method with which it’s calculated. Your FICO score may be anywhere between 400 and 800, and the higher the better. Some other companies may use a letter grade system that is based on similar calculations used in the FICO.

The algorithm is a proprietary piece of information known only to Fair Isaac, but there are several items that have been determined to directly raise or lower your score. Late payments and the number of them will lower your FICO, as well as the total debt carried in relation to your income.

Scores of 720 and above are extremely good and optimal choices when awarding new lines of credit. 620 to 720 scores are considered on a case-by-case basis, as these people may provide good and bad credit situations. Anything below 620 is considered fair to poor, and these scores are unlikely to obtain any new loans or credit.

Some lenders will consider things other than a FICO score when making loan decisions, such as whether you own your home, if you have a history established with the lender, and how long you’ve been at your current job. Investments and retirement accounts may also be considered in this decision – especially if your score falls in the 620 to 720 range.

Virtually every establishment you have ever held an account with will report information that affects your FICO score. Credit cards, auto loans, home equity lines of credit and student loans will all be reported and associated with you. Good information always remains on your credit, and bad information is erased in 7 to 10 years after paying off the debt, such as collection accounts.

Lenders will look at the histories of these accounts listed on your report to establish whether you are worthy of a loan and what interest rate you qualify for. Better FICO scores qualify for lower interest rates, which effectively makes purchases less expensive in the long run. Other factors that may influence the issuing of a loan or line of credit is the demand versus supply of lendable funds, current interest rates and the current state of the economy.

Improving your FICO will not only increase your chances of being approved for a loan, but will also qualify you for a less expensive one through lower rates. Developing a debt reduction plan to pay off old collection accounts or bad debts, credit card balances and student loans will gradually increase your FICO score.

It is suggested that if your score is lower than needed, you should delay seeking credit while you reduce debt and improve your situation. In addition to the lower interest rates you’ll qualify for, inquiries into your credit score from lenders, if excessive, can also reduce your FICO score.