Whenever you fill out a credit card or loan application, your credit history and personal information is checked by a credit bureau. The credit bureau will analyze a number of things, like: how promptly you make your monthly payments, how many credit cards you have, or how many loans you’ve taken out. It’ll also say how much credit you have available on existing cards, or how well you maintain other bills, like your electric bill. This history is contained in a credit report. It’s a record of debt repayment that’s used as a predictor for how you’ll handle debt in the future. It gives lenders or other businesses an idea of how well you manage money, so they can know whether or not they want to do business with you. Anyone looking to approve you for an insurance plan, a loan, a credit card, or anything else having to do with credit is going to be looking through your credit history.
If you’ve never applied for credit or taken out a loan, you don’t have any credit history. And while, yes, it’s theoretically possible to live without credit, it’s hard to get anywhere in today’s world without it. In order to get a credit card, take out a home or auto loan, or even get a cell phone, lenders and banks want to see that you can handle the repayment of credit. Credit histories let them know you can fulfill your financial obligations.
What Is a Credit Score?
Your credit score is a number calculated by information in your credit report as well as other information. It predicts how delinquent you are likely to be with your payments in the future. Although there are different systems of credit scores, the most commonly used is the FICO. The FICO uses a score scale from 300 to 850, 300 being the worst score and 850 being the best. If you’re struggling with a low credit score, try to steadily improve it. You can do this by making your payments on time and in full, or by being a little more conservative with how many lines of credit you open. There are many different causes of poor credit scores, so the solution can be a complicated, lengthy process. If you’re dissatisfied with your credit report but aren’t sure what might be dragging it down, visit credit counselors at your bank and see what they suggest.
What Practices Can Hurt My Credit Score?
Bad or adverse credit history is sometimes called sub-prime, non-status, or impaired credit. Missing and/or delinquent payments can hurt both your credit score and your chances of being approved for loans. Here are some other practices that negatively impact your credit score:
- defaulting on a loan
- having an account charged off or sent to collections
- having high credit card balances
- maxing-out credit cards
- applying for several credit cards at once.
Where Can I View My Credit History?
To see how your credit history is doing and to catch any mistakes, you can contact your credit bureau directly or look them up online. They’ll get you access to your report. You may be surprised to hear that more than 13 million people every year find discrepancies in their credit reports. These discrepancies happen for a number of reasons, but it’s mostly due to human error. So it’s a good idea, and your responsibility, to check on things at least annually and make sure your reports are accurate. It’s also your responsibility to report any inaccuracies before they affect your credit score. Otherwise, these inaccuracies could end up costing you a lot of money. The link above will give you some guidelines on how to do that.
Who Else Can See My Credit History?
If a company or organization has legitimate need, they can access your credit history for business purposes. Anyone with a court order can also access your credit report, though these court orders are difficult to come by. Here are some examples of business needs:
Creditors like auto or mortgage loan lenders or credit card issuers will review your credit score before approving you for a loan or card.
Banks may look at your credit if you want to open an account with them, since customers with good credit scores are less likely to abandon or overdraw accounts than customers with bad credit scores.
Insurance lenders will refer to your credit history when determining your rate. The better your history, the less likely you are to file an insurance claim. Insurance companies also look at your credit score, but it’s usually not your FICO score. Instead, it’s a special insurance score that’s based in credit. This insurance score still takes into account your payment history, how much credit you have, and how much debt you’ve acquired, but its primary focus is how many hard inquiries have been made and how many negative accounts you have. Hard inquiries occur any time you apply for credit, and they require your consent. These inquiries stay on your credit report and affect your FICO score. They give the insurance company an idea of how likely you are to file an insurance claim, so they, in turn, know what kind of rate to give you.
Student loan lenders
Student loan lenders will check the credit of any parents applying for PLUS loans.
Utility companies cannot deny you service if you have adverse credit, but they can still pull your credit report if they feel it necessary. Depending on your credit score, they may require that you pay a deposit.
Landlords may pull your credit history to see if you’re likely to pay rent on time.
Current or prospective employers
Current or prospective employers can’t access your credit score, but they can see your credit history with your written consent. And if you are denied employment because of your credit, the employer is required to send you a copy of your credit report with an adverse action notice.
Collection and government agencies
Collection and government agencies may look to your credit report for your contact information. Your credit history may also help the government determine your ability to pay child support. If you’re applying for public assistance, the government may check your credit report to see if you have any unclaimed assets or income.
What if My Credit Is Accessed by Someone Without Authority?
Your credit history is not publicly available, but if your identity is stolen, the thief may be able to access it. To stay on top of account activity, you can apply for credit monitoring via Credit Karma. This service will alert you anytime someone with your identifying records opens a new account. You can also take advantage of the free annual ChexSystems report. This report will display any opening of a bank account by means of your social security number, something Credit Karma could miss.
Are There Credit Cards for People with No Credit History?
When it comes to credit, just like when it comes to job experience, everyone has to start somewhere. Credit card companies know this. That’s why, for young adults starting out on their own, there is a huge market for credit cards that don’t require credit history. College-goers can receive credit cards specifically designed for university students with insufficient credit. So not having a lengthy or impressive credit history doesn’t automatically disqualify you from getting approved for cards or loans.
Improve Your Credit Score
A high credit score is absolutely attainable to anyone who practices wise money management. To make sure you never miss a payment, enroll in automatic bill pay. This function will deduct the necessary payment amount from your account every month, right on time. That way, you don’t have to worry about remembering to pay. You can also set up payment reminders that will alert you via email or text message whenever a payment is due.
- Here are some other ways to maintain good credit:
- keep your credit card balances low
- pay off debt quickly
- refrain from opening too many accounts
- check your credit report at least annually for flaws
Remember, having credit cards and using them is good so long as you don’t have too many cards and you don’t use them recklessly. And while debt should be avoided, some debt is necessary, like a mortgage or an auto loan. So all you have to do is stay on top of it all. You want your credit report to show that you can have multiple credit cards and pay them all off with little to no trouble; that yes, you have a mortgage and an auto loan, but you’re making your payments on time and everything is running smoothly. And remember, here at Low VA Rates, we work with clients with all types of credit. Give us a call or visit our website to see how we can help you.