Manage Your Credit History Before it Manages You

Many major events in life begin with your credit history. You may be renting an apartment, buying a home, shopping for a new car or just dealing with an emergency, when a creditor asks to pull your credit report.

What’s on that report will determine whether you can get the credit you’ll need, and if so, how much it will cost you in interest.

Failing to make payments, filing bankruptcy or even just applying for too much credit at one time can set you back. Some negative events can remain on your credit report for seven years, making it very difficult for you to get the credit you may need.

Here’s what you need to know to keep your credit history healthy.

What’s on a Credit Report?

Your credit report lists personal information including your name, date of birth, addresses where you’ve lived, telephone numbers you’ve used and employers you’ve worked for. It also includes a list of credit accounts you’ve opened and closed, their balances and whether they’re in good standing. Reports may include negative information, such as accounts that haven’t been paid as agreed and accounts that have been sold to collection agencies. Credit reports may also include a section on “inquiries” or instances where you’ve authorized a creditor to look at your credit history. A large number of inquiries can be a red flag for creditors and becomes part of the information that goes into calculating your credit score.1

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What Factors Affect My Credit Score?

Your credit score is a three-digit number that is based on your credit history, and it helps creditors analyze the risks of loaning you money. They are commonly known as FICO® Credit Scores, created by the Fair Isaac Corporation and is named after the the algorithm that calculates them. Most commonly, they range from 300 to 850.2 The biggest factor that goes into calculating FICO® Credit Scores is payment history, which accounts for 35% of the total. The other factors are amounts owed, 30%; length of credit history, 15%; mix of credit or types of credit you use, 10%; and new credit and inquiries from applying for new credit, 10%.3

How Can I See My Credit Report and Learn My Credit Scores?

Credit reports come from three major agencies: Experian, Equifax and TransUnion. Under federal law, you are entitled to a free copy of your report from each of these agencies every 12 months. You can also get free copies if you are denied credit or insurance as a result of what’s reported. You can order them online at annualcreditreport.com.4 Discover provides FICO® Credit Scores for free online and through the Credit Scorecard program*.

Don’t be afraid to request your credit report information—inquiring about your own credit is considered a “soft inquiry” and does not affect your credit score.

How Can I Manage What Goes Into My Credit Report?

It’s important to review what each of these agencies is reporting to be sure the information is accurate. If you find mistakes, you may dispute them by writing the agencies reporting them. Include documentation supporting your claims.5 Each credit reporting agency offers a page on their websites, as well as a mailing address, where consumers can do this. Under federal law, agencies have 30 days to investigate claims, so be sure to follow up if you haven’t heard back after a month, because agencies are then required to remove the disputed information.

If you’ve accidentally missed a payment, or fallen behind for a brief time, you can sometimes request a creditor remove negative information they’ve reported to a credit bureau when you settle the account in full — particularly if there’s been an oversight.5 This doesn’t always work, but it’s worth a try.

Another way to keep your credit report clean is to avoid applying for too much credit at once. By regularly applying for credit, you’re adding inquiries to your report, which may negatively affect your credit score. Always be selective in choosing credit.

Ultimately, the best advice is this: If you don’t want it reported, don’t let it happen. There are consequences to missing payments, defaulting on accounts and filing bankruptcy. Keeping current with your bills can be as important to your life as maintaining your health.

Does My Credit Score Need to be Perfect?

A perfect credit score of 850 is extremely rare and perhaps fleeting (the moment someone with an 850 score applies for credit, that score drops because of an inquiry). The good news is, you don’t need to be perfect to be excellent. In fact, any score above 750 is considered excellent. And any score above 700 is considered good.6

Remember: Keeping your credit history and credit scores in top shape will save you thousands of dollars over the course of your lifetime.

Resources:

1. http://www.nerdwallet.com/blog/credit-cards/read-credit-report/

2. http://www.myfico.com/crediteducation/articles/

3.http://www.myfico.com/crediteducation/WhatsInYourScore.aspx

4. http://www.ftc.gov/faq/consumer-protection/get-my-free-credit-report

5. http://blog.credit.com/2014/06/5-ways-to-get-things-off-your-credit-reports-85575/

6. http://www.credit.com/credit-scores/what-is-a-good-credit-score/

Legal Disclaimer: The articles and information provided herein are for informational purposes only and are not intended as a substitute for professional advice.

FICO is a registered trademark of the Fair Isaac Corporation in the United States and other countries.

Discover Financial Services and Fair Isaac are not credit repair organizations as defined under federal or state law, including the Credit Repair Organizations Act. Discover Financial Services and Fair Isaac do not provide “credit repair” services or assistance regarding “rebuilding” or “improving” your credit record, credit history or credit rating. 

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