Credit decisions you make today can impact your life for years to come. Because of their long, influential nature its important to learn about credit reports and credit scores. The sooner you understand how they work and adapt your behavior to establish good habits, the better off you will be when it turns out you really need credit.
Your credit report
Arguably one of your most important documents in your financial portfolio. Your accounts and transactions are documented by the three national credit bureaus. The good, bad, and ugly may stay on your credit report seven years at a time. That means mistakes you make when you are in your 20s can still affect your life and wallet when youre in your 30s with very different financial goals and responsibilities.
Your credit report is compiled individually by the three bureaus (Experian, Equifax and TransUnion) who record your accounts, credit limits, current balances, and payment history as reported by your creditors. Included in this history are any collection records, bankruptcies, employment history, and current and past addresses.
Know how to fix it
You should know that you really have three distinct credit reports. Thats because each credit bureau maintains its own files. Its important to make sure each report is accurate and stays accurate. When viewing your online credit report, many companies such as CreditReport.com, will allow you to automatically dispute inaccuracies with the click of a mouse.
Your credit score
Your credit score sums up the information in your credit report. Its somewhat like a GPA for your credit history. Those who are interested in how youve handled credit are able to take a shortcut and look only at your credit score. This three digit number summarizes your credit history. Good credit habits will translate into a good credit report, and that translates into a good credit score.
Easy steps for controlling your credit future
- Resist the temptation to apply for every credit card offer that comes your way.
- Use your credit cards wisely and sparingly.
- Be aware of the potential pitfalls of credit cards: minimum payments, late payments, and cash advances. Commit to paying your bills in full every month. Dont be fooled by the ability to carry the balance, as interest will continue to accumulate.
Get financially literate
If you have already made more mistakes than you care to admit, you are not alone. Good news: today is a great day to start working on better credit habits. Find a debt calculator online to help you formulate a plan for getting out of debt. Check out JumpStart.org, a coalition for personal financial literacy, for resources. The Federal Trade Commission also has a wealth of consumer-friendly information on credit and identity.