What to look for in your credit report to reduce borrowing costs

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Your credit score can make or break your ability to open a credit card or buy a new car or house at attractive interest rates.

To increase your score, you need to know where you need to improve.

Keeping tabs on your credit report — which outlines your debts, bill-paying history, and other financial information — can help you do that.

The three major credit reporting agencies – Equifax, Experian and TransUnion – recently extended the availability of free weekly credit reports to consumers through the end of 2023. By law, consumers are entitled to one every 12 months from each agency, but that during the pandemic, companies have expanded access to free weekly checks.

The reports are available on the Annual Credit Report website.

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“We always recommend once a year, at least, to always check your credit report on annualcredit report.com,” said Trent Graham, program performance and quality assurance specialist at GreenPath Financial Wellness, an organization non-profit providing free debt counseling services.

Although the free credit report you’ll get won’t show your credit score, it may offer some clues on how to increase that number. You can access your credit score by paying for it at one of three credit reporting agencies, or access it for free from your credit card company if they offer the benefit.

In terms of credit scores, anything in the 700 or higher range is generally “good enough,” Graham said. The closer your score gets to 700 or 800 — approaching popular scoring models’ perfect score of 850 — the better off you’ll be, he said.

The national average credit score recently hit an all-time high of 716, according to FICO.

Your credit score may vary slightly depending on the provider.

A recent NerdWallet survey found that more than a quarter of respondents – 27% – say their credit scores have gone up since the start of the Covid-19 pandemic, while 14% have seen their scores go down.

Two key factors influence your credit score

If you’re looking to boost your credit score, keeping two priorities in mind — paying your bills on time and keeping your debt balance low — will help.

“That’s 65% of their credit score right there,” Graham said. “The more they focus on these two key categories, the better their score will generally improve.”

If you pay a bill more than 30 days late, that misstep stays on your credit report for seven years, according to Graham.

But the good news is that the more you make payments on time without falling behind, the better your score will start to improve, he said.

We always recommend once a year, at least, to always check your credit report.

Trent Graham

Program Performance and Quality Assurance Specialist at GreenPath Financial Wellness

“It’s not a short-term fix, like one to two months to make payments on time,” Graham said. “It can be fixed, it just takes a little time.”

Your report will also show your credit usage or how much you owe against your credit limits. Ideally, you want to have less than 30% utilization.

Debt was a big factor for those who saw their credit rating change since the start of the pandemic, according to the NerdWallet survey.

Of those who saw their credit score increase, 69% said it was due to paying off debt. Meanwhile, almost half – 47% – who saw their scores drop said it was due to taking on more debt.

Other factors also included in your credit score, according to Graham, include length of credit history, which accounts for about 15%; different types of credit and usage, 10%; and new credit applications, 10%.

Although these factors are not weighted as much, you may want to think carefully before closing an old account, which will reduce your available credit.

NerdWallet’s survey found that 46% of respondents mistakenly believe that closing a credit card will help your credit score.

Asking for too much new credit can also affect your score.

Your credit report will help you identify which accounts have been open the longest and the number of inquiries on your report.

What to do if you spot an error

Your credit report may contain incorrect information, which can affect your credit score.

If you spot an error, you can file a dispute form with each of the three credit bureaus. It usually takes 30 days for these claims to be processed, Graham said.

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