Knowing the differences between a credit report and credit score is critical
Image Source: Flickr User Ed Ivanushkin
After you file bankruptcy, it’s important to begin working right away to rebuild your credit score. To do this, you need to understand your credit report. You also need to know the differences between a credit score and a credit report. You must work on both and makes the best choices to get your credit score as high as possible as soon as possible after you file Chapter 7 or Chapter 13 bankruptcy.
What is a credit score?
A credit score is a numerical calculation based on a proprietary formula that uses information from your credit report. A credit score represents how much of a risk you are for lenders and creditors. A credit score intends to rank your creditworthiness and the odds that you will repay the debt and will make payments in full and on time. Different companies will calculate scores differently. The most popular credit score is the FICO score. FICO originally stood for the Fair Isaac Company that developed the first widely accepted credit score calculation and, since then, the company changed its official name to FICO.
Other companies, including the credit reporting agencies themselves, have credit scores. Some competing scores include VantageScore and CE Score. To further complicate things, FICO has different versions of their score that creditors can subscribe to and assess potential customers. At any time, there are up to 49 different versions of your credit score depending on which calculation is used and from which credit report it is drawn. There are currently seven different FICO scores in use which can be based on any of the three reports from Experian, Equifax, and TransUnion.
What is a credit report?
In contrast, a credit report is a history of your credit activity for the past seven to 10 years. It shows credit accounts that you opened, collections accounts, judgments against you, loans and other activity. If a lender or creditor checked your credit prior to opening an account, they will typically (but not always) report your activity to the credit bureaus. For instance, your auto insurance and gas company may check your credit but won’t report monthly on your activity. Most other creditors including your credit card issuers, auto lender, and mortgage lender will report monthly on your usage and payment activity.
But even accounts that didn’t involve an initial credit check can end up on your credit report if you don’t pay them on time. For instance, if you don’t pay your cable bill and the account goes into collections, the collection agency can make an entry on your credit report. If a creditor, or even an individual, sues you and gets a judgment against you, they can have this put on your credit report. There are three different credit reporting agencies – Experience, TransUnion, and Equifax. Not every creditor, collection agency or court system will report to all three. Major lenders like MasterCard or AmEx will report to all three, others may report to just one or two.
Mastering the credit report and credit score after bankruptcy
To improve your credit score after bankruptcy, you must understand how the credit report affects your credit score. You cannot control your credit score, but you can impact what goes on your credit report that then impacts the calculation of your credit score. You should pull all three credit reports prior to filing bankruptcy to make sure you get all accounts possible included in your bankruptcy petition. Then, after you get your bankruptcy discharge, you should go to work improving your credit score.
- The first step is to make sure all three credit reports are accurate.
- Pull the three credit reports again after your discharge and make sure all applicable accounts that were included in your bankruptcy now reflect a zero balance.
- If any are incorrect, write the credit agency and include a copy of your petition showing the account was included and request that they correct the report.
- Make sure any items that are older than seven years are off the report. Items should fall off seven years after your last payment activity.
- Once your reports are cleaned up, then you’re ready to rebuild your credit starting with a secured credit card – look for one that will convert to unsecured after a year or less.
- Don’t ever go over 30% usage of your credit card balance to optimize your score.
- Take on credit slowly and monitor your credit score with a service like Credit Karma so you can see how on-time payments and gradual increase of credit sources boosts your score.
If you’re overwhelmed by debt, making only minimum payments, maxed out on credit cards and living paycheck to paycheck, no doubt your credit score is taking a beating. Chapter 7 bankruptcy can wipe out most of your unsecured debt and give you a fresh financial start. Chapter 13 can give you time to catch up on past-due balances and protect your assets. To find out if North Carolina bankruptcy is the best debt relief option for you, contact the Law Offices of John T. Orcutt today. Call +1-888-234-4190 for a free bankruptcy consultation at one of our offices in Raleigh, Durham, Fayetteville, Wilson, Greensboro, Garner or Wilmington.