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Breaking Down Your Credit Report

Attempting to buy a home without knowing your credit score first is like trying to build a house without knowing how many square feet it should be or what the budget is.

Most people who have bad credit histories will find themselves on the outside looking in at homeownership.

Understanding the Credit Report

Your credit report gives a snapshot of your credit history. It shows lenders how you've handled credit in the past, which can affect your ability to get credit and your interest rates. Whether you have loans or not, you have a credit report, and you can see it for free once a year.

Treat your credit report as the financial document it is. The information can help you understand what you need to do to improve your financial future.

What is in a Credit Report?

The reports contain details about your account history, including how much you owe, whether you pay your bills on time, and what types of credit you have (such as mortgages, auto loans, and credit cards).

The three pillars of information that lenders (and also you) can mine from your credit report include:

  • The types of credit you frequently use
  • Information about all of your open credit accounts and how long you have had them
  • Whether you pay your bills promptly

Information in your credit report is used to calculate your FICO score. Your FICO score is between 300 and 850, which lenders use to predict how likely you are to repay a loan. The higher the score, the more likely you will pay back the loan on time.

Identifying data

The report includes your location, date of birth, social security number, and employment details. It also includes your address, phone number, and email address if that's how creditors have contacted you. It can also include whether you've lived at a certain address in the past.


You will find information about accounts on your credit reports, such as when they were opened, whether they're paid on time, how much is owed and what type of account they are. Each of these tradelines contains the following information about you:

When you have several tradelines on file, you are said to have "a good credit history." When there are few or no tradelines on file, you have little or no credit history.


Every time someone requests your credit report, it's added to a list compiled and shared with other companies. The Fair Credit Reporting Act (FCRA) requires that this list be given to you each year so you can see who's snooping around in your credit file.

On the report, the "inquiries" section lists everyone that has accessed your credit report in the last 24 months, whether you requested them to or not. You must check this section before you apply for a loan or credit card to ensure there are no inquiries from anyone you did not authorize to look at your report.

Public record information on your overdue debt

  • Bankruptcy - If you've filed for bankruptcy within the last seven years, it will appear on your credit report. It will also remain there for another ten years after the bankruptcy has been settled.

  • Tax Liens - If you've had a tax lien placed against you by the IRS or state revenue department, it will be reflected on your credit report. However, if you pay off the tax lien, it should automatically be removed from your credit report within 24 hours.

  • Child Support - Child support payments are legally required to be paid on time and in full each month, or else penalties can occur. If you are behind more than 90 days on child support payments, then that information can appear on your credit report.

Please note that if your credit report has errors, you may be forced into a loan with a high-interest rate and fees, or it could cause your application to be denied. If you think you have an error on your credit report and you've applied for a loan within the last 30 days, tell the lender about it. If you spot inaccuracies in your report, you can contact the three major consumer reporting companies.

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The FICO Score

The lenders can use many credit score models to evaluate your creditworthiness, but the most commonly used model in the US is the FICO score. The Fair Isaac Corporation aimed to create a credit model that could be used across a wide range of industries and applications. To accomplish this, they developed a credit score based on the data found in a consumer's credit report. The model is updated every 3-5 years to improve its accuracy.

Although the FICO score is the definitive credit risk test in the USA, lenders sometimes use other scores to evaluate your creditworthiness. These include:

  • Customer risk scores - They're based on a borrower's history with a single lender, and that lender typically will have its own name for the score it uses.

  • Risk application score - This score combines the FICO score plus other information is used by lenders to measure whether you're likely to repay a loan, as well as the size of the loan you can qualify for. It considers things like income, assets, existing debt, and other factors related to your finances.

  • Other bureau scores - Because there are so many different credit bureaus, these companies can develop their own score, much like FICO has. VantageScore is an example.

If you've been turned down for credit, you can request a free copy of your credit report within 60 days. This is a right promoted by the federal Equal Credit Opportunity Act and will give you insight into what factors are influencing your credit score. The lender is required to explain why they cannot extend the credit to you if your credit score informs their decision.

How is FICO Score Calculated

The score is calculated using five different categories: Amounts Owed (30%), Payment History (35%), Length of Credit History (15%), Type of Credit Used (10%), and New Credit (10%).

Taken together, payment history and amounts owed are considered the most critical factors to a person's creditworthiness. In contrast, the length of credit history and types of credit in use are considered the least important. Payment history (or "credit utilization") accounts for 35 percent of a FICO score, while the amount you owe accounts for 30 percent.

Keep in mind that there's no such thing as a solid number when it comes to your credit score. Your score can change at any point in time due to the nature of how credit reports function. The only way to maintain a solid score is by keeping credit card debt low and keeping track of any monthly changes.

When FICO Scores Vary Between Bureaus

FICO scores are mostly consistent across the reporting agencies. However, given how lenders and other people report information differently to these agencies, each agency may report slightly different information.

If you have your credit report from one credit agency, and it's different from another, contact that agency and ask them to correct it. The incident number is linked to your credit file, so you will be able to check if the incident was resolved.

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