By Kristina Lockridge
I was denied a loan when I had a credit score of 798. It’s true. So how is that the case when so many commercials and advertisements emphasize the importance of a high credit score? It’s simple, really. Your credit score is just a summary of your credit-based life – it’s not the full picture. “The devil is the details,” as they say, and your credit report shows every detail.
In my case, I had a debt-to-income ratio that was a bit too high for the lender I was working with. While your credit report does not show a lender your income, it does show them all of the active debt you currently have to repay. When you give the lender your income details during an application process, they are then able to put together a comparison of the amount of money you make and how much you owe, which in my case, didn’t meet the lender’s underwriting standards. Lucky for me, including my husband as a co-applicant was beneficial because our dual income helped outweigh the debt we have, and we were then approved for the loan.
I say all of this to make a very clear point: your credit score isn’t everything! If you focus on cleaning up your credit report, more times than not your credit score will simply follow suit.
What information is included on a credit report?
There are four main categories of information on your credit report:
Personally Identifiable Information
This section will include things like your name (and alias names), social security number, address, date of birth as well as current and past employers.
Every lender you currently have debt with reports that debt to the credit bureaus. This section of the report shows every account you have open (mortgage, auto loan, personal loan, credit card, etc.), your balance for each of those accounts, your payment history and whether or not you’ve made payments on time. This is the section of your report that will contribute the most to your score, so keeping your accounts in good standing is critical.
Any time you apply for a loan, you are authorizing a lender to request a copy of your credit report, and each of these requests show up within this section of the credit report.
Public Record and Collections
Public record information from state and county courts also shows up on your credit report within this section. This could include bankruptcies, as well as debt that is overdue.
Do yourself a favor and review your credit report every year. You can get one free copy of your credit report every 12 months from each credit reporting agency. Visit annualcreditreport.com to learn more.
How can I improve my credit report and score?
- Start by reviewing your credit report. Seriously. Actually read through it. It might be a bit tedious, but this is the best way for you to catch possible errors on your report and see which factors are affecting your score.
- Work toward paying off debt. This is important especially if you have quite a few accounts open at once. The fewer open credit lines, the better.
- Make your payments on time each month. Missing a payment or making a payment late can have a severe impact on your credit score and report. Lenders want to know that you are reliable to pay them back as agreed to.
- Try to keep credit card balances low. Credit utilization ratio is another big factor that goes into your score.
- Only open new credit accounts when needed. You shouldn’t open a credit card, for example, just to have a better mix of credit accounts on your report.
- Don’t close credit cards you aren’t using. Closing credit card accounts if you have a zero balance can add to your utilization ratio. Keep it open unless you’re getting charged annual fees.
- Dispute any inaccuracies on your credit report.
If you’d like professional help establishing positive credit history, reach out to our partners at GreenPath Financial Wellness.