Credit Reports and Credit Scores

Free Credit Report

A free credit report can help you gauge your status among creditors and banks. A free credit report can also help you manage your finances to a degree, allowing you to plan your expenses properly too. It will be especially useful if you have a family to feed and look after daily, as expenses may need to be divided among your immediate family members. Planning your expenses by effective utilization of a free credit report can also mean efficient future planning too.

Your credit rating can be determined by a number of things. It is primarily issued to people who hold checking and bank accounts, as well as people who have taken out loans before. Banks and other financial institutions may use these credit ratings to gauge how likely you are to pay back debts such as loans and credit interest rates. Having a good credit score can help you gain favor with major banks, while a low credit score may mean just the opposite.

Credit Reports and Credit Scores

Credit report and credit scores share two significant differences from each other:

• A credit report shows a detailed history of the credit cards you have used, as well as any loans you may have taken out. This history is typically issued by major credit bureaus once a year. It may also include detailed information about the accounts that you have held, as well as collections if you have any.
• A credit score is a three-digit number that is based on the information shown on your credit report. This credit score is based on your ability to pay back loans and credit interest rates, among other details. It can also include any negative information which can reflect on the final credit score.

Based on these credit scores and reports, banks and financial institutions will be able to gauge your reliability when doing business with them. Credit reports in particular will evaluate the credit worthiness of an individual or company. A credit report will contain an individual’s past borrowing and repayment history. Creditors will look for particular information when going over your credit report, such as late payments and bankruptcy.

Customers who apply for credit with a bank or other financial institutions will have his or her information forwarded to a credit bureau for a background check. Information written on this application will be cross-checked before a final credit report is issued to the creditor. Providing accurate information to a creditor, whether or not you have a bad credit rating, is always important.

Credit scores, on the other hand, are simplified numerical scores that represent a statistical analysis of a person’s credit report. Credit scores are also sourced from credit bureaus, and are used to evaluate the potential risk a consumer poses to a creditor or financial institution. Credit scoring is not only done by banks, but also by real estate companies, government agencies, mobile phone providers and insurance companies.

Both of these should be looked after, especially if your financial situation is particularly sensitive. As credit reports and scores are used to assess a consumer’s likelihood to repay debts on time, people with bad credit reports or credit scores may be shunned from financial transactions. This may not always be the case, however, as some financial institutions may have special deals for people with unfavorable credit reports and low credit scores.

Importance of Free Credit Reports

Every U.S. Citizen is entitled to a free copy of his or her credit report once a year. This is attributed to the FACT Act, or the Fair and Accurate Credit Transactions Act, established by Congress in 2003. The importance of this free credit report is not only for transparency during financial transactions, but also to safeguard the finances of American families.

These free credit reports can be very important for a variety of reasons:

• It can be a good way to safeguard citizens against identity theft and fraud.
• Free credit reports provide transparency between creditors and their customers.
• They allow a means to which a person can accurately plan expenses.

Should you already have a copy of your free credit rating, then you should be able to plan your expenses better. If you currently possess a bad credit score, then your free credit report should be a good way to formulate a plan of recovery. Getting your credit score up can help you utilize more financial transactions while keeping you from reverting to a default.

You can try a few things to keep your credit report favorable:

• Keep an account open with one bank or institution for a long time – A general rule to follow is that the older your credit report is, the more stable you are perceived by creditors and financial institutions.
• Diversify your accounts – Your credit score improves if you have more than one type of account on file. Your experience in dealing with multiple kinds of bank accounts and loan types makes you look more reliable in the eyes of creditors.
• Minimize requests for credit reports – While this may have little to no bearing on your credit score whatsoever, a request for a credit report is noted down every time it is made.

Some businesses exist solely to provide consumers with credit reports. These usually cost a small fee, and can be an alternative to having to wait for your free credit report once every year.