Understanding Credit Reports

Probably the single most important permanent record you'll have in your life is your credit report (besides, of course, your criminal record...which we hope you won't have).  Your credit report is basically a report that details your current credit and how you've managed your credit over time.

The Importance of Your Report

Your credit report is incredibly important because companies look at it every time you apply for a loan, finance a car, rent an apartment, buy a cell phone, apply for a credit card, or take out a mortgage to buy a house.  If your credit isn't good enough, you can be denied.

Your credit report will basically follow you everywhere you go in life.  If you start having problems with managing your credit, it'll begin to affect you in a number of different ways in life.

Things That Negatively Affect Your Credit Report

Your credit report is given a credit score.  The higher the score, the better your credit.  Various things can lower your score, including?

-Not making your monthly payments: If you forget to make a payment or just can't afford your monthly payment, it'll affect your credit report.  Be sure to get your payments in on time.

-Having a lot of credit cards and loans: If you have too many credit cards and loans, it's called overextending your line of credit.  You'll be too risky of a client to get another loan or credit card.

-Changing credit cards frequently: This doesn't affect it as much as the others but changing credit cards frequently will lower your score slightly.

-Carrying high balances: If you have a high balance on your credit cards, your credit score will obviously be lowered.

Things That Positively Affect Your Credit Report

Believe it or not, things can actually raise your credit score, so it's important to know about these.

-Always making your monthly payments: This shows companies that you're responsible with your credit.

-Having few credit cards and keeping them for a long time: The longer you have a credit card, the better your score.  And the fewer credit cards, the better.

-Carrying low balances or regularly paying them off: It's always good to have a low balance but it's also good for your credit if you regularly have high balances and pay them off right away.  Like if you make big purchases but pay them off the next month.

-Having reasonable lines of credit: Someone who has a $2000 limit on their credit card will improve their credit better than someone with a $500 limit, if they're responsible.  But too high of limits can be bad.

I recommend looking at your credit score from time to time.  It'll give you a chance to see what's helping your credit report and what's hurting it.  Some credit reporting services will even recommend ways for you to improve your credit score.  Just be sure your score never sinks to a level where you're in danger of not being able to achieve your financial goals.