When the Federal Reserve Bank of Boston released figures in May 2011 indicating a revolving consumer debt of $793.1 billion, many people were shocked. This information was exacerbated by the fact that 98% of this debt was from credit cards and when a MasterCard Survey of 2010 indicated an average three cards per holder by 2010, it was obvious things were out of control. Granted, this is a trend all over the world with households ignoring their credit reports only to get shocked when financial institutions decline them a line of credit due to bad credit scores. If you have not been scrutinizing your credit report regularly, it is high time you started doing so to estimate how creditworthy you are in case of an emergency.
What Credit Reports And Scores Entail
Since the 1830s when third party credit agencies started developing, this has proved to be a very efficient system of ensuring coordinated lending and borrowing practices. A credit report consists of information about all your financial transactions more so debts that you might have accrued along the way. It is a combination of details which can tell any financial institution how well you manage your money and if you have any bad credit with other lenders to avoid a situation where it advances money only to encounter problems when trying to recover such debt. Credit Bureaus are charged with collating such information and availing it to any institution on request. Some of the information in your report includes:
•Personal information; includes all details about yourself such as name, residence, social security number, D.O.B, current and previous employer and spouses name if any.
•Credit history; if you have had any transactions to do with loans and repayment with your bank, they will be recorded here. This section can also include credit company transactions and payment, retail store transactions and mortgage repayment/arrears. In addition, it will show repayments, late repayments and defaulted payments with all accounts used for these transactions also listed here.
•Report requests; if there are any companies that have requested for this report; you will get to know them, their intention and dates when such requests were made.
•Public records; any information in government custody which can still indicate your creditworthiness is attached here. It can include bankruptcy claims, tax evasions among others. In case there were any disputes on any transactions, statements made by you and your creditor will also feature here.
The main credit Bureaus in the US are Experian, Equifax, and TransUnion, and they use the FICO scoring system to calculate your credit rating. To get your credit score, some key factors are considered each with a specific weight to give a three-digit figure ranging from 300-850. Factors considered include payment history (35%), debt (30%), time in file (15%), account diversity (10%), and credit inquiries (10%). However, within each of these key determiners, there are specific issues these Bureaus will look at and it is important to seek clarifications.
Importance Of Checking Your Credit Report
While most people give Credit Bureaus all leeway they want, it is important to always ask for your free annual gov credit report and scan it from front to back. According to the Fair Credit Reporting Act (FCRA), you have a right to dispute any incorrect information and because these bureaus deal with very many forms, you might get some errors. These reports also help you to manage your debt more firmly by checking how well you are fairing and in so doing, getting encouragement to decrease your debt even further. In other cases, you might realize someone has queried your report without permissible rights which is punishable by law. When you dispute errors by finance companies such as banks, your credit score will definitely improve if mistakes made are affecting this rating.