Purchasing your first home. Buying the car of your dreams. Opening your own business. In order to attain all these goals, you need to have a healthy credit that will let you finance both your current and future needs. That is why you should be aware of all the elements that affect your credit, how to keep an excellent credit history and what alternatives are available for you to improve it. Turn your credit history into your best ally and you will reach all your goals.

The credit report is prepared by agencies specialized in gathering, organizing and classifying a person’s past and present debts. Money lending entities or those that offer credit lines depend on this report to evaluate the level of credit risk a person may have based on the person’s behavior regarding his or her financial obligations. The credit report is assigned a score, which is like a picture of the risk to give credit to the person at a particular moment in time. Some companies even evaluate credit reports when considering to offer employment to someone, since it reflects a side of this prospective employee’s nature.

Although the format may vary, the report is essentially comprised of the following basic information: personal information, history of loans, amounts of debt applications and a space for information of a public nature.

Personal information – includes name, address, Social Security Number, date of birth and employment information. This data gets updated as the person submits his or her personal information at lending entities. This information does not affect the final score assigned.

Loan history – a list of all the debts. Banks and other lending entities submit to these agencies a list of the loans or credit lines issued to a specific person. They report the type of account, date opened, amount lent, account balance and payment history.

Applications – each time you apply for a loan, the lending entity is automatically authorized to ask for your credit report. Here you will find a list of all the persons or entities that have requested a credit history report of you during the past two years. The report states if it was a voluntary request, the kind initiated by the person the report is made on, or if it was an involuntary application, like when some entities request information on someone in order to, say make a mailing on a preapproved offer of a financial product.

Public record – credit agencies also gather information from the government and justice Courthouses, so they include any existing debt in any government agency; such as annotations on property executions, bankruptcy cases, claims, lawsuits and judgments passed.

In addition to the credit report, money-lending entities may ask for a credit score on the person, commonly known as a FICO, the acronym of the program developed by the Fair Isaac Corporation for those purposes. The credit score is prepared by the three main credit entities: Equifax, Experian and TransUnion.

The higher the score, the lesser the risk for banks and moneylenders when approving an application. This score will also help you get better offers from lending entities, such as a lower interest rate or a faster application approval processing.

This score, which is a number between 300 and 850, is not the only element used to approve a loan. The approval also considers the elements considered by the agencies grading the score, including their internal policies. A score of 780 or more is considered excellent, whereas a score of 620 or less is considered a bad one.

Payment history – this is referring to the amount of past due payments on loans and length of delay. This portion also takes public records into consideration, such as those from the Treasury Department (Hacienda), bankruptcies and Judgments. In order to set the score, all bad accounts are compared to those that have been paid on time. This item is harder to work on, unless the report includes mistakes that are easy to amend. Remember that paying an old debt is not going to eliminate this information from the credit report. In order to have an excellent credit history:

• Pay all of your bills, installments and invoices on time.
• Stay current on all your accounts.

Amount of credit – states the total amount of debts the person has, regardless of whether he or she pays on time or not. It determines a relationship between the amount of credit used by the person and the amount of credit he or she has available. It also examines the amount of money paid in each debt or obligation and the amount pending for payment. To improve this component:

• Lower the amount of debts. Consolidating them or transferring them hardly ever helps improve the score.
• Do not close credit card accounts that you no longer use.
• Do not open new credit cards or loans without needing the money, simply to increase the amount of credit to have available. This could bounce back and lower your score.

Timeframe of all debts – Here they look at the date of the first debt and the average open date for all financial obligations. They also examine the amount of time that you have been using certain accounts. Generally speaking, a credit history of many years will increase your score. To improve this portion of your credit report, keep in mind the fact that there are no fast solutions. Remember:

• Do not close many of your old accounts and do not enter into new ones.
• If your credit history is a recent one, do not enter into too many new accounts in a short period of time. This could be translated into suggesting that you are a risky applicant.

New Debts – your credit report will take into consideration both the amount of new debts and the amount of new applications for loans or credit. It also examines the time elapsed between these applications. To insure this area is not affected:

• Carry out your search for alternatives during a short period of time. Contrary to popular belief, amounts of applications filled out during a short period of time do not have a negative impact on the score. Credit agency programs can discern between a search for alternatives and an application to get a significant amount of new credit.
• Your score will not be influenced if you apply to receive your own credit report. You should apply directly at the agency issuing the report or at an entity authorized to provide them.

Types of debts – The type of financial obligation and the installments for each is taken into consideration here. For example, the amount of credit cards, the amount of personal loans, mortgage loans, etc. Remember that paying off a debt will not remove it from your credit report. To be on the safe side:

• Apply for and enter into new financial obligations only when you have the need.
• Have credit cards and manage them responsibly. This way, your score will be higher than that of persons without a credit card.

It is recommended that you examine your credit history report once a year or at least six months before applying for a sizable loan to purchase a house or car, or before entering into a considerably large financial obligation. If you find any errors, notify it immediately to the corresponding agency, which must assess the situation and get back to you within 30 days.
Equifax – 1-800-685-1111
Experian – 1-888-397-3742
TransUnion – 1-800-888-4213