subject: How Credit Reports Work [print this page] How Credit Reports Work How Credit Reports Work
Your credit is, without a doubt, one of your most priceless assets. Every day, more and more of your finances are controlled by your credit score. Expensive deposits, higher interest rates, higher payments, and sometimes the disqualification for financing or leases can result from your credit score not being substantial enough. The first step to taking control of your credit is to learn what your credit is, and how credit report works.
In its most basic sense, your credit score is essentially your financial report card. Your creditors (credit cards, car loans, mortgages, or anyone else you owe money to) report the standing and history of your account to one or sometimes all three of the major credit bureaus (Equifax, Experian, and Transunion). The things they relate include your credit limit, current account balance, whether or not your payments have been made on time, and the payment record of your account for as long as you've maintained it with them. Also passed along is how repeatedly and by whom your credit has been requested due to you applying for new credit, also known as "inquiries." Once a month, your present account status is recorded with the credit bureau(s) that your lender has chosen to report with. The limit, balance, and history are all updated. The credit bureaus measure whether your account is late in 30 day increments.
For instance, if you were to pay your credit card payment two days past due, your credit most likely won't suffer, as you weren't greater than 30 days late, which is in what manner the credit bureaus measure. Don't forget, though, that the conditions of your agreements can still result in you suffering penalties, now and then quite extreme, if you make your payment so much as one day late. Just because you don't wind up with a negative reporting on your credit does not mean you can't be assessed late fees or even sometimes permanent increases to your interest rates.
The credit bureaus, through a scoring system they keep quite secret (defined as the Fair Isaacs Corporation scoring model, or "FICO score" for Experian, "Empirica Score" for Transunion, and "Beacon Score" for Equifax) determine your score month to month based on your current account standing and payment histories. Your score can change each month, occasionally very dramatically, relative to what is reported. Also calculated is the amount of inquiries you've had of late, which is also able to have a short-lived side effect on your score also.
If any one of your accounts has not had a payment made by the first day of the next month, you are considered "thirty days late" and will receive a negative reporting on that account. If that account still has not received a payment on the first day of the next month, you would then be considered "60 days past due" and so on the first day of each month afterward. This can greatly effect your credit score. Late payments, collections, charge offs, bankruptcies, foreclosures, etc can all injure your credit score in a huge way. On the other hand, accounts with histories of on time payment histories will positively influence your credit score, causing it to improve over time.
The key to really taking control of your credit is to examine it and learn how it works. You probably wouldn't dream of diving into an aircraft and careening off down the runway without the first clue how to control it, but often enough so many people take that course to learning how credit works. Do yourself a favor, invest in your financial education and learn how to control one of the most important elements in you and your families life: Your Credit Score. You'll be glad that you did.
