Understanding Your Credit Report
by : Warren Clarke

If you're in the market for an auto loan, one of the first things you should do is take a look at your credit report. This document provides the data that goes into calculating your credit score; your credit score, in turn, plays a huge role in determining what interest rate lenders will charge on your loan and whether you'll be able to get a loan to begin with.Awash in numbers and data, a credit report can look like gobbledygook to the uninitiated. Getting up to speed on how it works is clearly important.

Let's unlock its secrets.

Your credit report is a document that comprehensively details your credit payment history. Ever owned a credit card? Or taken out a bank loan? If you have, it's likely that information regarding your account activity will be reflected on your report. But this sort of payment data isn't all that your report will contain. Typically, four types of information are reflected:

Personal information. This includes your name, spouse's name, social security number, current and previous addresses, birth date and current and previous employers. This data is culled from your past credit applications, so its accuracy is dependent upon how completely and honestly you fill out forms each time you apply for credit.

Credit information. Included is information regarding each of your accounts with banks, retailers, credit card issuers and/or other lenders. Credit limits as well as loan amounts and balances are detailed, along with payment patterns going back a few years.

Public information. This includes bankruptcies, tax liens and monetary judgments, and, in some states, overdue child support.

Inquiries. Included are the names of those who requested and obtained copies of your credit report. Not all of this information remains on your credit report permanently.

Positive credit information will remain on your report indefinitely, although information about an account will fall off your report if nothing new is reported for seven years.

Negative credit information remains on your report for up to seven years after the date of the original delinquency.

The length of time for which a bankruptcy will dog your credit depends on the type of bankruptcy that you file. Chapters 7, 11 and 12 remain on your credit report for 10 years. If you file a Chapter 13 bankruptcy (under which all or part of all debts owed are repaid under a court-approved payment plan), it will be deleted from your report after seven years. All other public record information typically falls off after seven years.

Inquiries are typically cycled off your report after one to two years, depending on the type of inquiry. There is, of course, some personal information that your credit report does not reveal. It doesn't reflect information about your race, religious preference, medical history, personal lifestyle, personal background, political preference or criminal record.The following points shed some light on how lenders evaluate your report:

As one would expect, on-time payments are viewed as a plus by potential grantors of credit.
A low debt-to-income ratio (under 20 percent) is ideal. This ratio is calculated by dividing your total monthly debt (rent or mortgage payments plus credit card minimum payments plus loan payments and the like) by your total gross monthly income.

Lenders tend to frown upon those with too many credit cards. The available credit on these cards is viewed as being potential debt.
Late payments hurt your rating. The later the payment (whether 30, 60 or 90 days) the more of a negative it will be.

Frequent requests for additional loans or credit cards can count against you. If you've had more than four inquiries made within the past year, it will hurt your chances to get new credit.
Numerous changes in address and/or employment may also hurt your rating. Lenders like stability.

As one would expect, items like bankruptcies and charge-offs are viewed negatively. If you find information that you believe to be incorrect in your credit report, you'll need to address it. Contact the credit bureau in writing, including documents that support your position. Make sure your letter lists your name and address.

Clearly identify the item you believe to be invalid, explain why you think it is erroneous and request its deletion. The credit agency must reinvestigate disputed items, usually within 30 days. The law states that erroneous information, or disputed information that the credit bureau is unable to verify, must be deleted from your file.You're probably wondering how get a copy of your report. It may be ordered from any of the three credit bureaus — Experian, Trans Union and Equifax. Remember, forewarned is forearmed. Even if you're not currently hunting for a car loan, it's a good idea to take a look at your credit report now. That way, problems can be addressed before they have a chance to hurt your prospects.

Tips for Subprime Borrowers

Keeping with the mission to bring our readers quality credit advice, this article by Warren Clarke, the Automotive Content Editor of Edmunds.com is a MUST READ!


Getting a Car Loan with Bad Credit


You've just learned that your request for an auto loan with XYZ Bank has been denied. The loan officer explains that the decision has to do with your credit score. XYZ lends only to prime borrowers; your credit score, she continues, places you squarely in subprime territory. Subprime. You're not sure exactly what it means, but it sounds like a condemnation that will forever brand you as being somehow deficient to lenders. However, being deemed subprime doesn't necessarily mean that your borrowing days are over. It may still be possible for you to get that sought-after car loan (albeit from a different lender).

But first you need to understand the term that defines you. A subprime borrower is one with bad credit. Each lender has its own definition of what constitutes a subprime borrower, but typically, a credit score of less than 620 lands you in this less-than-desirable category. For more information on credit scores, and what sort of factors cause them to suffer, please see Credit Scores Demystified and Understanding Your Credit Report.There are plenty of credit grantors specializing in subprime lending who are eager and willing to loan money to those with bad credit. Naturally, though, there's a catch. The interest rates for subprime borrowers are frequently quite steep — significantly steeper than those paid by their more credit-worthy brethren.

So, now that you understand what your playing field looks like, how can you finesse the game in a way that gets you a reasonably priced car loan?

Here are a few tips:

Check your credit report. Make sure that everything on your report is accurate; it could be that information has been entered in error, and that your credit history is a lot less blemished than you've been led to believe. If you do find information on your report that is inaccurate, you need to address it right away. Contact the credit bureaus in writing, listing your name and address and clearly detailing the nature of the error.

Access your credit score. For a long time, credit scores were available only to prospective lenders, who used them to evaluate those seeking loans. That has changed; it's now possible for consumers to access this all-important number. Your score is available online from each of the three credit bureaus: Trans Union, Experian and Equifax. If you've got bad credit, it's helpful to know it beforehand. Knowing your credit score will help give you a sense of exactly where you stand in your search for an auto loan.

Don't rely on the dealer. Dealers take a cut of all car financing deals they land; as a result, any loan that they're able to get you with a bank or financing company is likely to wind up being more costly to you than if you had contacted the lending institution on your own. Ideally, you'll want to secure your auto loan before setting foot inside the dealership.

Shop around. Rates will vary from lender to lender; take the time to look around and see what deals are available. Lenders typically define their business according to credit tiers (A, A- and so on.); speak with loan officers regarding how each tier is linked to credit score and interest rate. Ask for a matrix detailing the tiers and their implications; having something in writing from each lender will make it easier to compare your options effectively. If you have a checking account, make sure to include your bank in your search for a loan. Many banks have entire departments dedicated to providing loans to those with flawed credit, and they tend to look more favorably upon applicants who are current clients.

Your credit unio is also a good place to turn. For years, credit unions have had a reputation of lending only to members with good credit, but that's begun to change. Many are now beginning to expand their business to include those with less-than-perfect credit.

Remember that your credit score is malleable and ever-changing. When it comes to your credit history, the ball is entirely in your court. You can improve your bad credit by paying your bills on time, and not overextending yourself when it comes to loans and credit cards. With proper attention paid to the state of your credit, you could conceivably hoist yourself out of subprime territory in as few as two or three years. Going forward, check your credit score at least once annually. You may have to pay more than you'd like for the auto loan you're about to receive, but in a couple of years, if your credit score has improved, you'll probably be able to refinance your loan at a much lower rate.