Credit 101

What Information Does a Credit Report Include?

Your credit report begins with your basic details – your full name, birth date, address, past addresses and so forth. Credit reports should no longer include details about liens and judgements, but bankruptcies do still appear.

Next, you’ll see an informational breakdown for each line of credit you have. Account time, account age, number of payments made, missed payments, late payments and other facts are all included. Payment history, credit utilization, credit type, account age and credit inquiries all factor into your credit score.

After a set period of time – seven years of 10 for a chapter 7 bankruptcy – accounts “fall off” your credit report. That means they don’t appear anymore and no longer impact your credit score.

What is a Credit Score?

A credit score is a number that third parties, especially lenders, use to assess the risk of lending you money. The score is one way banks, credit card companies and other institutions assess the likelihood that you can or will be able to pay off any debts you accumulate. A higher credit score indicates that your current financial circumstances and your historical behavior demonstrate a willingness and ability to pay off any loans you may be approved for.

In the United States the credit scoring system you will hear about most is the FICO score, a score used by the major credit agencies to rate your creditworthiness. Your FICO score will be between 300 and 850 with a higher score being better. When it comes to your credit, lenders may sometimes refer to it in terms of Credit Level or Credit Quality such as Poor, Fair/Average, Good or Excellent with each category referring to a range of FICO scores.

Poor credit is considered anyone with a FICO score under 580

Fair or Fair credit rating will be between 580 and 669

Good credit is between 670 and 739

Very Good credit is between 740 and 799

Excellent credit is anything above 800

The Components of Your Credit Score

The makeup of your FICO score is broken up into a bunch of major factors:

Payment History (35%)

Debt Burden (30%)

Length of History (15%)

Types of Credit (10%)

Recent Credit Searches(10%)

Payment History

Your payment history is by and large the largest single component of your FICO score. The best way to think of your payment history is to consider it a track record of all the things you've done wrong when it comes to credit and a measure of how you behave when it comes to your debts. You don't get a boost for paying things on time as much as you get penalized for not doing so. A history marked with negative information would indicate that the person often faces difficulty meeting their debt obligations, or rather someone that has a risky attitude when it comes to their credit. Both are signals to the lender that they may want to be more cautious when it comes to making additional credit available.

Late Payments

The most common problem consumers face in the payment history component is late payments. Whether it was because you simply forgot or were struggling to make ends meet, being late on a monthly payment for your credit card or a loan will usually cause a negative adjustment on your credit score. How much of an impact can also depend on how late you were with the FICO score making larger downward adjustments the later it is. You will see this reflected on your credit report with late payments marked under categories like 30-days or 60-days etc. One thing to be aware of is missed or late payments on what may seem like trivial amounts can be just as damaging.

One major reason for keeping the number of credit cards and accounts you have at a manageable level is to avoid these issues. It's way too easy to open up a store credit card, make a charge on it and simply forget about the account. Even if you're making thousands of responsible payments on all your other accounts, forgetting to pay off the $50 you spent on that one off charge can dramatically hurt your credit score.