Understanding Credit Scores

Understanding Your Credit:

To better serve you, we are now providing monthly educational newsletters on credit. Every month Credit Innovation Group will provide you with valuable information that will help you understand how the credit system works, including tips on improving and maintaining good credit. We feel that having a better understanding of your credit will not only help you make better decisions in the future but also help you achieve your credit goals.

Credit 101:

Your credit report is divided into six main sections: Personal information (address, birthday and employment), consumer statement, account histories, public records, inquiries and creditor contacts. When you open a new account, miss a payment or move, these sections are updated with new information. Old negative records will stay on your credit report for seven to ten years. Positive records can remain on your credit report longer. Not all creditors report to all three agencies and the agencies obtain their data independently so your reports from Trans Union, Equifax and Experian could be substantially different from each other. That’s why it is important to monitor all three of your credit reports to ensure that the information is accurate and up-to-date.

Myths and Realities:

Myth: A credit score is a “grade.”

Reality:  A credit score is a prediction of future performance, not a judgment of past behavior. This may seem like a subtle distinction, but it helps to clarify what a credit scoring does. Scoring allows lenders to identify individuals who are likely to perform in the future even if their credit information reveals past problems.

Questions and Answers:

Q: I just paid off a collection account but it’s still on my credit report. Shouldn’t it be gone now that it’s paid?

A: Unfortunately, this is not true. Paying off one’s collection account does not mean the negative will be removed from your credit file. The paid collection status is still rated as a negative.

Q: Is it true that one negative item can drop your score 100 points?

A: Yes, if one late payment is added to a credit file your credit scores can drop 100 points or more. Anytime an account becomes negative, re-aged, or additional late payments are added your scores will drop.