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Credit
History
When you apply to finance or lease a Toyota
at the dealership, the dealer will take a look at your credit
history.
Your credit history contains two important
elements: Credit Report and Credit Score.
Credit
Report
Your credit report helps creditors decide if
they want to extend credit to you. It includes:
- Personal information: Your name, current and previous
addresses, Social Security number, date of birth, telephone number
and current and previous employers.
- Credit information: Your creditors and account details such as
date opened, account number, amount borrowed, payment terms,
credit limits, account balances and payment history
- Public records: Tax liens, bankruptcies and court awarded
judgments.
- Inquiries: A listing of all parties that have requested a copy
of your credit report. This includes formal inquiries (a list of
all creditors who have accessed your credit report), promotional
inquiries (this is where all those pre-approved offers come from)
and account management inquiries by your current creditors (they
have the right to review your credit report periodically).
Promotional and account management inquiries are not shown to
other creditors and do not impact your credit score.
How is your Credit Report generated?
Each of the three major credit-reporting agencies (or credit
bureaus) keeps a running tab on your credit history, based on the
information it receives from creditors and public records, among
other sources. When you apply for credit, creditors will request a
copy of your report from one or more of these bureaus.
The
contents of your credit report are used to compute your Credit
Score. We'll go over that in the Credit Score section.
Keep
in mind that the more you know, the better (and faster) your visit
at the dealership will be.
Credit Score
Your credit score can be your best friend or your nemesis.
Your goal is to maintain a good credit score, as these scores are
used by creditors when they're deciding whether or not to extend
credit to you.
The credit scores generated by the credit
bureaus are often referred to as "FICOŽ scores", even though each of
the three major credit bureaus has its own name for these scores.
FICOŽ stands for Fair Isaac and Company, the company that produces
the software used by many credit bureaus to calculate your credit
score. These scores range from 250 to 900 - the higher, the better.
Over the years, this three-digit scoring system emerged as a
way to compare how the information on your credit report compares
with each bureau's credit history on hundreds of thousands of other
consumers.
Basically, your credit score informs
creditors how likely you are to repay your debt.
Because your credit score is such an important aspect of
obtaining credit, multiple factors are used to compute your credit
score: (Remember the credit rating guide in the Rate Your Credit
section?)
- Past payment history - Have you paid your credit accounts on
time?
- Amounts owed - How much credit you have available vs. how much
you owe.
- Length of credit history - How long have you had your credit
accounts?
- New credit and credit inquiries - Have you recently taken on
more debt?
- Types of credit established - May include credit cards, home
mortgages, and car loans.
Not just one
score
Until now, we've painted a picture of your
credit score being one number that is used to determine whether or
not you're worthy of receiving credit. The truth is, there is no one
score. Every bureau has its own scores for different purposes and
each bureau uses its own method of calculating your credit score
based on all of the criteria listed above.
Additionally, it's
quite probable that at any given time, each credit bureau will
report a different credit score for you. They all attempt to remain
as current as possible, but the resulting score is only as accurate
as the information that they have available. This is why you should
check your credit scores from time-to-time.
Creditors use the
scores they obtain from the bureaus in their own formulas to
determine a credit score of their own. While we can't identify the
factors used by every creditor in identifying your credit score,
it's safe to assume that these formulas incorporate your credit
bureau score as it fluctuates from time to time. Fluctuations can be
used as a guide to understanding your financial behavior (how likely
you are to repay a debt).
You're not alone
It's a tough job trying to keep track of everyone's credit.
While the credit bureaus try to stay on top of your credit history,
sometimes things are missed. Therefore, your score from any given
credit bureau is a reflection of the most recent information they
have on you, so it's possible for your credit score to change by the
day. Here's where you come in.
To always remain in good
credit standing, you must take a proactive approach to guard your
credit. There are various ways to do this, and among these are the
tips you'll find in the next section. Right now this may all sound
like more trouble than it's worth, but we wouldn't steer you the
wrong way (getting you where you want to go is what we do, after
all).
So that's it for your credit history. You now know the
basics of what credit is and how it affects you.
The next
and final section of this credit tour will focus on where we left
off here: how to maintain good credit. It's a lot quicker to get
through, so don't quit on us now!
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