Credit Issues: What You Need to Know

What you'll find on a credit report.

The major credit repositories collect three types of information. What you see will include whatever applies to you in these areas: Public Record Data This usually is stuff that is not good. The term "public record" means information that is recorded by government authorities, including courts. So, if you have declared bankruptcy, or there is a tax lien on property that you own, or there is some other financial matter in which a court or government agency has recorded an action against you, this will show up in the search of public records. If you have adverse public record information, this does not preclude you from getting a loan, but it does make it difficult to be rated as an "A" borrower (a term often used to describe people whose credit is viewed as low risk by lenders). Once the issue has been resolved, after 5 years have passed you often can restore a low-risk credit rating. In the meantime, you probably will have to write a letter to any potential lender to explain the situation (lenders call these "cry letters"). Trade Lines A trade line is a status report on an existing account where you have credit, such as a store charge card or major credit card. The lenders with whom you have these accounts voluntarily supply the status information to the major repositories of credit information. A trade line covers an account that you now have that gives you either installment credit (a fixed loan that you pay off in regular installments ) or revolving credit (a loan whose amount can vary depending on purchases, such as a major credit card or department store credit card). The credit report will show whether you are current or behind payments on the account, and it will show how often you have fallen behind within the recent past (usually one year or three years). If the trade line section shows only 1 or 2 missed payments, and no current delinquencies, you are fine. If it shows you as being currently delinquent, it is strongly recommended that you remedy the situation before you apply for new credit, such as a mortgage loan. Hard Inquiries This shows recent inquiries made to the credit reporting company by companies from whom you have requested a credit card or some other form of credit. Soft Inquiries A soft inquiry is when you request a copy of your own credit report. This type of inquiry is "officially" harmless, although some will argue that repeatedly checking your credit report around the time you shop for an auto or mortgage loan, could imply to the lender that you're worried about something that could be added in the future.