Understanding your credit history
It's a smart move to learn how credit works and why it's key to your future. It's also a good idea to know how to correct or improve your credit history once you've gotten a copy of your credit score.
What is a credit report?
A credit report is a detailed listing of your personal credit information containing such items as your name, current and prior addresses, birth date, social security number, alternate names, credit history and credit score. Your credit history will include companies to whom you currently owe money or have in the past, the highest amount you owed, your current balance, and your monthly payment history over the past year on each of those loans. These can include such items as mortgages, home equity loans, credit cards and auto loans.
What is a credit score?
A credit score is a snapshot of your credit risk at a particular point in time. This is the rating that lenders may use to quickly review your ability to repay a loan. Your credit score can change over the years, even in a matter of days based on how you have used your credit.
Why is a credit score important?
Your credit score helps lenders decide whether they will give you a loan, how much they might loan you, the type of loan they will make (secured or unsecured) and the rate they will charge you. Yes, your past performance on paying off debts will affect how much interest you have to pay on future loans.
What factors are used to determine your credit score?
The most important factors are: whether you pay your bills on time, the amount of unsecured debt you have, the number of ‘trade lines’ (credit cards, auto loans, etc.) you have, the number of years you have been granted credit, and if you have any recent negative items on your credit report such as delinquent payments, judgments, unpaid debts, et cetera.
Why would a lender use a credit score?
A lender will use your credit score in order to make the fastest possible decision on approving a loan, to set the rate on the loan, to determine the viability of the amount of the loan, and to make fairer credit decisions. This is why many lenders are able to approve a loan request while you wait--often in just a few minutes.
How do I review my credit report?
It's a good idea to get a copy of your credit report at least annually and review it for accuracy. Sometimes, credit reporting agencies make mistakes. They have millions of files on record; also dishonest people may try to defraud you by stealing your identity and using your social security number to gain credit. Review your credit report annually in order to see if there are errors on your report or debts that are not yours.
Where do I get a copy of my report?
You can get a copy of your report from the three major credit reporting agencies (Equifax, Experian or Trans Union). We provide information on how to contact these agencies.
What do I do if there is an error?
If you find an error, report it to the credit reporting agency that must investigate and report back to you within 30 days. If you are applying for a loan, immediately contact your lender and notify the lender of the potential error.
How do I improve my credit score?
Since your credit is based on your borrowing history, it is difficult to improve your score immediately. If you have a bankruptcy or late payments this can lower your score immediately. Improving your credit score takes time. Continue to make your payments on time. Maintain a prudent number of credit cards with reasonable limits, but do not use the credit cards to the limit. Avoid excessive unsecured debt. As a general rule, you will have a higher credit score if you have three credit cards with a $5,000 limit on each and only a $1,000 outstanding balance with timely payments, than you will with one credit card with a $1,000 limit and a $900 outstanding balance.
What do I do if I want more information?
Northwest Community Credit Union is here to help. Contact the branch nearest you or
eMail us for additional help. We are glad to assist you in any way we can. We can even set up a personal appointment with you to help you review your credit information once you obtain a copy of your credit report.