SavvyMoney

Credit reports, also known as credit files, are composed of the credit-related data a credit reporting company has gathered about consumers from different sources. Credit reports include records of mortgage payments, credit card balances, credit card payments, auto loan payments, and credit inquiries. It may also include accounts that have gone into collections, public records, and other information from government sources.

Federal law mandates a free credit report once a year. However, the credit reporting agencies voluntarily extended a free weekly credit report program permanently. You may receive a copy of your credit report from each of the three national credit reporting agencies—Equifax, Experian, and TransUnion—once a week for free. To obtain your free credit reports, visit AnnualCreditReport.com.

If you are unsure what’s in your credit report, click on “Credit Report” to review all your accounts, payments, and more. Federal law allows you to receive a free credit report once a year. Also, due to recent changes, the credit bureaus—Equifax, Experian, and TransUnion—are permanently extending the free weekly credit report program that started during the pandemic.

The three national credit reporting agencies receive and manage literally billions of pieces of credit use data each year, reported from some 13,000 different sources. Given the incredible amount of data provided by lenders to the agencies, inaccuracies are likely.

If you find incorrect information in your credit report, contact the company that issued the account or the credit reporting company that issued the report. You can dispute any inaccuracies found on your TransUnion credit report by navigating to the bottom of the SavvyMoney Credit Report and clicking “dispute.”

Your credit report and your credit score are not the same thing. Your credit report contains all the information that a credit reporting agency has gathered about you and your credit history. Credit reporting agencies use your credit report information to calculate your score using a proprietary credit scoring formula.

Federal law entitles you to a free copy of your credit report once a year. However, the law does not require credit reporting companies to provide your credit score for free. In addition, the credit reporting agencies have voluntarily extended a free weekly credit report program permanently. This means you may receive a copy of your credit report from each of the three national credit reporting agencies — Equifax, Experian, and TransUnion — once a week for free.

A credit freeze, also known as a security freeze, is a free way to restrict access to your credit report. Adding a freeze means you or anyone else cannot open a new credit account with the freeze in place. You can, however, temporarily remove this freeze at any time if you want to apply for new credit.

It is important to note that a credit freeze does not affect your credit score. And while the freeze is in place, you will still be able to apply for a job, rent an apartment, purchase insurance, and receive pre-screened offers.

To place a credit freeze on your credit profile, you must contact each of the three major credit bureaus: TransUnion, Equifax, and Experian.

To unfreeze your credit profile, you must contact each of the credit bureaus again. Each bureau has a different process, but each will initially provide you with a PIN to unfreeze your profile.

There are several ways to improve your credit score, but it’s much more important to focus on improving what’s in your credit report rather than obsessing over your credit score. Here is some general advice:

• Pay your bills on time. How promptly you pay your bills has the strongest influence on your credit score.
• Apply for credit only when you need it. Do not open too many accounts too frequently, and avoid opening multiple accounts within a short time span.
• Keep your outstanding balances low. A good rule of thumb? Keep balances below 30 percent of the credit limit on each of your revolving accounts.
• Reduce your total debt. It is not necessarily bad to owe some money, but it is not good to owe too much money. Consider paying down some of your outstanding loans.
• Build up a credit history. Maintaining a timely payment history for a mix of accounts (e.g. credit cards, auto, mortgage) over a longer period can improve your score.

You will not build a solid credit score any faster by carrying a balance than you would if you paid your credit card balance in full each month.

The speed at which you build a credit score is largely based on the age of a credit card account, not whether or not you carry a balance. A credit card opened 12 months ago is a one-year-old credit card, regardless of your payoff or balance rollover practices. Additionally, carrying a balance on a credit card each month means you’ll incur interest charges.

The best way to build a solid credit score is to manage all of your accounts properly. Best practices include paying all of your credit obligations on time every month, applying for credit only when needed, and keeping balances on credit cards as low as you possibly can if you cannot pay them in full each month.

Charge cards and credit cards are similar in function but differ in credit scoring. Charge cards don’t have a set credit limit and the balance is due in full each month. Credit cards do have a set credit limit and the balance can be carried over or revolve from month to month.

Without a credit limit, charge cards don’t factor into your credit utilization, but because charge cards are paid off monthly, they do factor into the payment history component of your VantageScore^®.

Closing credit cards does nothing to improve your credit scores and, in fact, can backfire and leave you with lower scores.

When you close a credit card account, you lose the value of that card’s credit limit in the credit usage calculation. The credit limit is an important component when determining a consumer’s balance to credit limit or the “credit usage” ratio. This ratio rewards consumers who have low credit card balances relative to their credit limits.

If you close credit cards, especially those with large credit limits, you will likely cause your credit usage ratio to go up (if you carry balances). This can cause your score to go down.

Additionally, if you close credit card accounts the credit bureaus will eventually remove them from your credit reports. Even though it can take years for an account to be removed from your credit reports, once it is gone you will get no benefit from your responsible management of that account.

VantageScore^® 4.0 does not include medical collections in its scoring models after determining that medical debts are not predictive of a consumer’s creditworthiness.

It’s not the number of loans that generates a good score, it’s how current a borrower keeps them and many other factors such as credit utilization, and the age of loan accounts. In other words, your score can be impacted positively by taking out only a certain number of sensible loans and keeping them in good standing without missing payments.

Consumers are encouraged to shop for the best loan rates and terms. VantageScore^® model counts multiple inquiries made within a 14-day period as a single inquiry. The impact to your score from a single inquiry is minor and temporary.

Credit reports are a reflection of an individual’s credit activity. Accordingly, there are potentially countless scenarios where the number of credit cards owned may impact your credit score. Prudent handling of your personal finances is the best way to manage debts. Therefore, it is generally a good idea to have a limited number of credit cards for long periods of time that have low balances and are kept in good standing.

The amount of debt you have in relation to the amount of credit you have available is a significant contributor to your credit score; however, it is only one of several factors. Available credit and balances are only one of a number of other factors that are considered by credit score models. Improving your credit score can be achieved over time by regularly practicing these sound financial management techniques:

• Pay your bills on time
• Apply for credit only when it’s needed; do not open new accounts frequently or open multiple accounts within a short time span
• Keep your outstanding balances low – a good rule of thumb is not to exceed 30% of your available credit limit with each account
• Pay any delinquent accounts as soon as possible and then keep them current

The balance of an account has no influence over the speed at which you will build or re-build your credit reports or credit scores. A credit card with a $5,000 balance ages just as quickly as a credit card with a $0 balance. Further, even if you pay your balance in full each month there’s no guarantee that the account will show up on your credit reports with a $0 balance. Credit card issuers report your statement balance to credit reporting agencies. That means even if you pay your balance in full any subsequent use of the card is going to result in a statement balance greater than $0.

One of the most effective ways to build or rebuild your credit is by responsibly managing the accounts that you currently have, or open in the future. Maintaining low balances on credit cards and never missing a payment will lead to better credit scores. However, that certainly doesn’t mean you have to live a debt-free life in order to have solid credit. In fact, credit scoring models reward you for a track record of positive credit experience.

While it is possible for your credit scores to go down as a result of closing a credit card account, it’s not definite. The reason your scores could go down would be due to the loss of the credit limit of the newly closed card in your debt-to-credit limit ratio measurements. If you are carrying debt on other credit cards then your debt-to-limit ratio, which is calculated by dividing your aggregate credit card debt by your aggregate credit limits on open credit cards, will likely go up. This can cause your credit scores to go down.

However, if you are not carrying debt on other credit cards or the credit limit on the newly closed card was modest enough then the account closure may not result in a change in your debt-to-limit ratio sufficient to result in a score reduction.

Credit reporting agencies do not remove accounts once they’ve been closed or paid off. In fact, there is no law requiring credit reporting agencies to ever remove accounts that are in good standing. At this time, however, the credit reporting agencies choose to remove inactive or closed accounts 10 years after they’ve been closed. Additionally, while closed or paid-off accounts are still on your credit reports they are still considered by credit scoring systems.

Yes. One of the differentiating factors of VantageScore^® 4.0 is the ability to generate scores for more consumers because it considers the entirety of a consumer’s history not just the past 24 months. This helps those with thin credit files, those new to credit, and those considered “unscorable” by traditional credit scoring models.