3/12/2013 5:45 PM ET|
6 key items in your credit report
Remembering to pull the report is only part of the job; here's where to find the indicators that could suggest identity theft or hurt your scores.
You've pulled one of your credit reports. Now what?
As you've probably heard by now, you're entitled to free copies of your credit reports. Federal law gives you the right to request your three credit reports, one from each of the three major credit reporting agencies, every year through AnnualCreditReport.com.
You can get them all at once or throughout the year. Personal finance gurus often recommend pulling one report every four months so you're regularly tracking your records. Either way, checking your credit reports is a smart move when you consider that information from your credit reports determines your credit scores.
But once you get a report, what do you do with it?
How about giving it the 6-minute treatment? While you definitely want to read the full report in detail, a quick check on a handful of indicators can give you an instant appraisal of how good --or bad -- your credit is right now.
Here are six markers that can provide an X-ray of your credit health.
Delinquencies are "huge influences" on the credit score, says Stephen Brobeck, the executive director of the Consumer Federation of America. In fact, they make up 35% of your FICO score.
If you see notations that bills have been paid 30, 60, 90 or 120 days late, "that's very damaging" to your credit, he says.
The other factor that's important here: the time frame. How late was the payment, and how long ago did you make this mistake?
The later the payment, the more it hurts your credit, says Evan Hendricks, the author of "Credit Scores & Credit Reports: How the System Really Works, What You Can Do."
But the more time that has passed since you made a late payment, the less it will affect your credit, he says.
High debt-to-credit-limit ratios
Credit scores typically look at your debt-to-credit-limit ratio or "utilization" in two ways: They compare the balance on one revolving account to your available credit from that lender. For instance, if you have a credit card with a $1,000 balance and a $5,000 credit limit, this ratio would be 20%.
Scoring formulas also look at your debt-to-credit-limit ratio a second way: calculating the total of all your debts on revolving accounts against your total credit lines on those same accounts.
So if you have four credit cards each with a $5,000 credit line ($20,000 in credit), and you have a $1,000 balance on two of them and nothing on the other two ($2,000 in debt), this ratio would be 10%.
"In an ideal world, you would want to have (those ratios) under 10%," says Hendricks. "But certainly you want to keep them under 40%. There's no magic number."
But if you're running up a balance of $2,000 to $3,000 with a card that has a $5,000 limit, "that's really going to hurt your score," says Brobeck. "And what's worse is running up balances on several cards."
Most of the time, if you have an account that has gone to collections or been written off as a bad debt, you know about it, says Rhonda Bailey, credit counselor and credit report review manager for the nonprofit Credit Counseling of Arkansas.
But not always.
"There are those few instances, like an old utility bill after you've moved, (where) the collection agency didn't find them and (the consumer) forgot about it," she says. "I see that occasionally."
If you find an item that isn't yours, you can dispute it and have it removed from your report.
If the item is yours, you have some decisions to make, Bailey says. Can you afford to pay it?
It's a good idea to check your state's statute of limitations, which is the period of time creditors have to sue you over a debt. Your state attorney general's office can give you that time limit, she says.
Separate from that time limit, the item can stay on your credit report for seven years. The longer it's been on your report, the less it affects your score.
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