Credit reports are the main source for discovering whether a borrower is worthy of receiving a loan for a home, automobile, or other reason. A credit report is an official history of an individual’s financial activities. It contains information about one’s accounts, whether active or inactive, and shows if such accounts are consistently paid in a timely manner. In addition, it lists the total combined amount one owes to all his or her creditors, as well as the amount of credit that is still available to the person. Such information will stay on an individual’s credit report for seven years, with the exception of personal bankruptcy, which will be visible for ten years.
Credit reports also include lenders’ inquiries and legal actions such as repossessions, liens, and property foreclosures. The majority of reports also list information such as the account holder’s employment history, previous addresses, and other personal data. A person’s credit report can be accessed by landlords, insurers, employers, lenders and other individuals who are allowed to review such information.
Understanding Good and Bad Credit Scores
Every person’s credit score will fall somewhere between 300 and 850. A low score indicates a poor credit rating, while a high score shows that the individual is credit worthy. This is how banks and other lending institutions determine if a borrower is a good risk, or if there is a likelihood that the person will default on a loan. Credit scores between 680 and 700 are considered good. Those with a score of 700 to 750 will typically enjoy low interest rates on most loans. Those with scores of 760 or higher are regarded as very low risk customers by most lending institutions, and such consumers will find it easy to qualify for loans and other mortgages. In addition, those who have maintained good credit frequently receive offers for credit cards and other types of loans.
Major Consumer Credit Bureaus
The three main credit reporting agencies are TransUnion, Experian and Equifax. These three agencies gather similar facts concerning consumers’ payment practices and credit histories. However, all three bureaus have regions and cities in which they are more established than others, which gives them an advantage over the other two agencies in those specific parts of the country. This means that credit scores from the three bureaus will not always reflect the exact same information, making it possible for each agency to deliver a slightly different score. Certain banks and other lending institutions may rely on only one of the three credit reporting agencies when running credit checks on applicants, while others use all the companies and base their decisions on an average of all three scores.
Another fact of which many consumers are unaware is that each credit reporting agency uses a different method of calculation when determining one’s credit score. Such methods may include information such as the total amount owed to all creditors, and the amount of any open lines of credit still available for his or her use. Also typically included in such criteria is the number of times the person has paid a bill late, and the number of times he or she has applied for credit in the past twelve months. The latter will show up on the report as an inquiry, indicating that a bank or other lending institution has inquired about the person’s credit history to determine if he or she is a good risk for a loan.
Credit Reporting Errors
Numerous individuals are under the impression that credit reports are always up-to-date and accurate; however, this is not the case. Often, one or more of the credit bureaus forget to update a consumer’s report, or fail to remove negative information that is inaccurate or outdated. This can result in financial problems for the consumer, as well as the possible denial of future loans. It is never wise to assume that the credit agencies will keep consistently perfect records, as clerical errors occasionally occur in all types of record keeping. For this reason, one should keep his or her own records, and immediately report any discrepancies.
Reporting Errors and Suspected Fraud On Your Credit Report
A consumer should report errors on his or her credit report in writing to the agency that he or she thinks has recorded erroneous information. The letter should list each disputed item, with a detailed explanation of why he or she believes the information is inaccurate. Copies of any evidence one has should be enclosed with the letter, and the Federal Trade Commission–FTC–recommends mailing it registered or certified to have proof that it was received.
The credit bureau has 30 days to respond to the consumer’s letter, and one should review all correspondence upon receipt to ensure that disputed items have been erased, or an explanation has been given from the credit bureau regarding the information’s validity.
With the recent increase in identity theft and other types of electronic fraud, it is essential that one check his or her credit history on a consistent basis and review the information for accuracy. This is the best way to prevent a problem from getting out of hand. Once an individual’s personal information has been stolen, another person can use the data to apply for loans and open credit card accounts, resulting in debt being accrued under the innocent party’s name. Unfortunately, the victim of such fraud is frequently held responsible for the debt unless he or she hires an attorney to rectify the problem. Often, the person must defend himself or herself in court, which can be a stressful and embarrassing occurrence for most individuals. For this reason, it is wise to view one’s report on a regular basis in order to head off problems before they begin.
The FTC states that the Fair Credit Reporting Act–FCRA–offers free yearly consumer credit reports from the three primary agencies to every consumer. Such a free gov credit report can be obtained through the Annual Consumer Credit Report website. This website offers free instructions for obtaining one’s report online, by telephone, or through the United States mail. Both the consumer’s date of birth, and his or her social security number are required when the request is made, and the FTC states that all three credit bureaus have permission to ask for any additional information they deem necessary to identify the person submitting the request. In addition, consumers can order copies of all three credit reports at the same time, or they can choose to stagger their orders throughout a twelve month period, such as ordering one from each bureau at four month intervals.
Benefits Of Acquiring Your Credit Report
There is a vast array of benefits associated with acquiring one’s official credit report regularly. Such benefits include the opportunity to discover and correct mistakes on the report, as well as to see exactly what various insurers, employers and lenders will see when the report is pulled. Certain individuals may even find signs of identity theft, which can be dealt with immediately, before it causes a major problem.
Credit Monitoring Services
There are various credit reporting agencies, lending institutions, and other organizations that offer credit monitoring services for approximately $15 per month. However, such rates can vary significantly from one agency to another. These services typically include access to credit scores and credit reports, as well as notifications to consumers about important changes to their credit histories. For example, a consumer will be notified if a new loan or credit card account has been opened under his or her name, or if a creditor has reported that one of his or her accounts has been closed or is delinquent.
Weighing the Pros and Cons of Credit Monitoring Services
It is important to understand that not all monitoring services are fool-proof. Many agencies of this type have been criticized for failing to provide protection from identity theft to their clients, which is the primary reason consumers enroll in such services. Sometimes, the reason that monitoring agencies fail to protect a consumer from identity theft or similar fraud is because they often report changes occurring at only one of the three major credit bureaus. However, as previously mentioned, a person’s credit history can vary considerably among the three companies, making it important to receive notification of new or suspicious information being posted on all three credit reports.
Regardless of one’s credit history, whether good or bad, it is important to understand the aforementioned information in order to make wise decisions concerning loans and other types of debt. It is also wise to visit the websites of each of the primary credit bureaus in order to familiarize oneself with how each one calculates credit scores. The internet is also a good source for learning more about how one’s credit history can affect his or her life and future.