Sometimes a lower credit score is expected depending on your stage in life or credit usage. If you’re young, or if you are just starting out in your financial life, you probably don’t have a very high score yet. Similarly, if you have a thin credit file or don’t have an extensive credit history with which to fill out your credit report, your credit score is also probably going to be lower than that of people with 20 years of credit history behind them.
If you fall into any of the above categories, you’ll need to prove your creditworthiness and improve your credit score by taking several important steps, including building your credit history and establishing good behaviors.
Components of your credit report
The same categories of information are in everyone’s credit report:
- Identifying information. This includes your name, address, Social Security number, date of birth, and employment information. This information is not used in scoring, and updates to it are typically received when you apply for credit or benefits.
- Trade lines. These are your credit accounts. Creditors report information on accounts you have established with them, such as the type of account (bankcard, auto loan, mortgage, and so on), the date you opened the account, your credit limit or loan amount, the account balance, and your payment history.
- Inquiry information. This part of your credit report shows the companies that have requested and/or viewed your information. Typically this covers the last two years.
- Public record and/or collection information. Here, you will find details about judgments, tax liens, or bankruptcies. Your credit file may also contain collection account information for debts that have been turned over to an outside collection agency.
How to establish good credit behaviors
Lenders will look to your credit file to determine the answers to the following questions:
- What kind of accounts do you have open?
- Do you make payments on time?
- Do you have available credit?
- What kind of a borrower are you?
If you have a thin credit file, lenders won’t find the answers they need—and they’ll look at you as a higher risk. However, as you open accounts, move or relocate, take out loans, open utility accounts, pay off debt, and move around in the financial world, your credit file will get thicker. Your credit history will soon start to reflect who you are in the financial world.
Once you establish good behaviors, such as paying on time and staying well below your available credit limit, your credit score will likely improve. The formula is different for every borrower, but good behaviors like these will be reflected in your credit score over time. Lenders can then look at your score and get a better idea of what kind of borrower you will be.
If you’re starting out in your financial life or if you need to straighten out your finances, see some of our other resources to help improve your creditworthiness and get on track with good financial habits.
Diane Moogalian is vice president of operations for Equifax Personal Information Solutions. Prior to joining Equifax in 2007, Diane held several strategic roles with leading financial services companies.
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