Credit score in the United States

How to Read a Credit Report

Building and maintaining your credit history takes time and dedication. While there are many things you can do when shooting for that perfect 850 FICO score, checking your free credit report every year from AnnualCreditReport.com is among the best personal finance habits. Once you have a copy of your credit report, let’s review step-by-step what to look for.

1. Check your personal information

First things first: Make sure that your credit report correctly shows your name, Social Security Number (SSN), phone number, and address. The three credit bureaus (Equifax, Experian, and TransUnion) keep track of all variations of names and SSNs reported as belonging to you.

You can easily rectify a small error, such as a misspelling, absence of a hyphen in a last name, or transposition of a street number by contacting the credit bureau and providing supporting documentation. Keep an eye out for information that you don’t recognize at all — this may be a sign of identity theft. (See also: Don’t Panic: Do This If Your Identity Gets Stolen)

2. Verify it’s really you

Even after checking that your full name and address are correct, you may recognize some accounts on your report that belong to somebody else in your household. In this case, you may be a victim of a mixed file — when the credit information of two individuals sharing the same name gets mixed up in a single report.

This can be a potential issue in multigenerational homes with several family members sharing the exact name. For example, John Smith Jr. opens a store card but the credit bureaus list the account on the father’s report (John Smith Sr.) instead of the son’s. That would be a mixed file.

3. Watch out for errors in account ownership

Going back to the example of the father and son, the father may have decided to open the store card in his name, and then add his son as an authorized user, or vice versa. Make sure that reported accounts are only the ones for which you are the owner.

4. Look out for accounts incorrectly reported as late or delinquent

Unless you were…

5 Myths About Credit Cards That Won’t Go Away

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The idea of evaluating a person’s creditworthiness goes back as early as 1899, when Equifax (originally called Retail Credit Company) would keep a list of consumers and a series of factors to determine their likelihood to pay back debts. However, credit cards didn’t make an appearance until the 1950s, and the FICO score as we know it today wasn’t introduced until 1989.

Due to these timing differences, many U.S. consumers hold on to damaging myths about credit cards. Let’s dispel five of these widely held but false beliefs and find out what to do to continue improving your credit score.

Myth #1: Closing unused cards is good for credit

Remember when United Colors of Benetton used to be all the rage and you shopped there all the time? Fast forward a decade; you don’t shop there anymore, and you’re thinking about shutting down that store credit card. Not so fast! Closing that old credit card may do more harm than good to your credit score.

Your length of credit history contributes 15 percent of your FICO score. If that credit card is your oldest card, then closing it would bring down the average age of your accounts and hurt your score. This is particularly true when there is a gap of several years between your oldest and second-to-oldest card. Another point to consider is that when you close a credit card, you’re reducing your amount of available credit. This drops your credit utilization ratio, which makes up 30 percent of your FICO score.

What to do: Keep those old credit cards open, especially when they are the oldest ones that you have. Just make sure that you’re keeping on top of any applicable annual fees and they’re not tempting you to spend beyond your means.

Myth #2: Holding a credit card balance is good for credit

Your payment history is a more influential factor to your FICO score than your total amount owed to lenders (35 percent versus 30 percent, respectively). This means that if you have a choice between paying off and holding on to debt, it’s generally better to pay it off. However, responsible…

4 Questions to Ask Before Getting a Credit Increase

Feeling penned in by the low credit limits on your credit card? You might be able to boost your credit limit to a higher amount. Often, all it takes is a single call to your card provider. The bigger question, though, is whether you’re financially prepared for a higher limit.

Your credit card providers will always set a credit limit on your cards, the maximum amount you can borrow. If you have a short credit history or a low FICO credit score, your credit limits might be low ones, sometimes under $1,000. If you have a long credit history and high scores, your limit might be $10,000, $20,000, or more.

How do know if you’re ready for the financial responsibility of a higher credit limit? Here are some questions to ask yourself.

Do You Pay Your Credit Card Bill Late?

Do you pay your credit card bills by their due dates every single month? Or have you missed payments in the past? If it’s the latter, you might want to hold off on requesting a higher credit limit.

Paying your credit cards 30 days or more late will cause your FICO score to drop by 100 points or more. Your credit card provider will also charge you a penalty, and your card’s interest rate might soar. If you have a higher credit limit and a high balance, an interest rate spike could cost you quite a bit in extra interest payments.

Having a history of late payments will also give your credit card provider pause; the financial institution might not want to boost your limit if you don’t always pay your bill on time.

Do You Carry a Balance on Your Card?

The smart way to use a credit card is to pay off your balance in full each month. This way, you boost your credit score by making on-time payments, and you won’t get hit by the high interest that is often…