credit report overview

Posted : February 27, 2018
Last Updated : February 27, 2018
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credit report overview

A credit report is a record of how you have paid your debts. It tells lenders:
  • Who you are.
  • How much debt you have.
  • Whether you’ve made payments on time.
  • Whether there is negative information about you in public records.
 

Credit Reporting Agencies

There are three major credit reporting agencies: Experian, TransUnion, and Equifax.

These agencies receive information from a variety of creditors, usually monthly, about whether you’re making loan and credit card payments on time. The agencies also collect information about bankruptcy filings, court-ordered judgments, tax liens, and other public record information from courthouse records.

 
Information Contained in a Credit Report

The reports from each of the credit agencies look different, but generally contain the same basic information.

Your identifying information, including:
  • Name.
  • Social Security Number (SSN).
  • Current and previous addresses.
  • Telephone number.
  • Birth date.
  • Current and previous employers.
  • Spouse’s name, if married.

A report containing your credit history.

A list of inquiries, other persons or companies who’ve requested your credit report.

A report containing information about you in public records (e.g., collection accounts, bankruptcies, foreclosures, tax liens, civil judgments, delinquent student loan payments, and late child support payments).
 

Personal Bankruptcy

The two most relevant types of bankruptcies are: Chapter 13 bankruptcy and Chapter 7 bankruptcy. You need to have a regular income to qualify for Chapter 13 bankruptcy. You can keep all of your property, but you must make regular payments on the debts, even after filing for bankruptcy. Income restrictions apply when filing for Chapter 7 bankruptcy. You must give up certain property to the creditor. Yet, you may be allowed to keep certain property that the law agrees is needed to support yourself and your dependents.

It’s important to understand that bankruptcy has a very negative impact on your credit. It should be your last resort! Depending on the type of bankruptcy, it’ll remain on your credit report from seven to 10 years. Having a bankruptcy on your credit report will make it hard to get credit in the future. The law requires that you receive credit counseling before filing for bankruptcy.
      

How a Credit Report is Used

Information in your credit report may determine whether you’ll:
  • Get a loan or other form of credit.
  • Get a job.
  • Be able to rent an apartment and/or affect the amount of your security deposit.
  • Get insurance.

Keep in mind, credit reporting agencies don’t make credit decisions. Credit reporting agencies simply report the information provided by creditors. This information can affect whether you get your next loan.

Creditors might deny a loan application if you have no credit history or if you’ve had credit problems in the past. A good credit record indicates you’ll most likely repay the loan, and lenders will be more willing to give you a loan.
 

Credit Score

Your credit score is based on the information in your credit report.
  • Your credit score is a number that helps lenders determine how much of a credit risk you may be.
  • It’s become increasingly common for lenders to make decisions largely based on credit scores.

It’s important to learn how the score is calculated so you can improve your score if necessary to obtain credit.
  • Your payment history is the largest percentage of your credit score. That is why it is important to pay your bills on time.
  • If you don’t have a history of late payments, your score may be lowered if your credit card balance is close to the limit or if you have just begun to use credit.

Creditors may use one or more credit scores. They may generate the scores themselves, or they may use a score calculated by another firm. Two of the scores used by creditors and lenders are FICO Score and VantageScore.
 
FICO Score
The FICO score is the primary method lenders use to assess how deserving you are of their credit. A FICO score is calculated using a computer model that compares the information in your credit report to what’s on the credit reports of thousands of other customers. FICO scores range from about 300 to 850.

The FICO model takes into account several factors when evaluating creditworthiness:
  • Payment History - 35%
  • Amount Owed - 30%
  • Length of Credt History - 15%
  • New Credit - 10%
  • Types of Credit - 10%

Federal law prohibits personal information (e.g., ethnicity, religion, gender, or marital status) from being reflected in your FICO score.
 
VantageScore
VantageScore is a newer credit scoring system offered by all three credit reporting agencies. You should have a similar VantageScore from each of the three agencies. The VantageScore ranges from 501 to 990. It groups scores into letter categories covering an approximately 100-point range, just like grades you receive on a report card. For example, your credit grade would be “A” if you had 901 points or more.

Effects of Good and Bad Credit Scores

It’s difficult to say what’s a good or a bad credit score, since lenders have different standards for how much risk they’ll accept.
  • A credit score that one lender considers satisfactory may be regarded as unsatisfactory by other lenders.
  • One thing is certain for virtually all lenders when it comes to obtaining a loan or a credit card; the better your credit score, the more likely you are to get a lower interest rate and pay less for borrowing money.
  • Scores fluctuate depending on credit activity. Since credit reporting agencies only calculate your score upon request, it’ll be based on the information in your file at that particular credit reporting agency, at that particular time.
  • Different scores from different credit reporting agencies can be a result of each having different information. To ensure accuracy of your information, you should obtain a copy of your credit report from each credit reporting agency.
 

Inquiries May or May Not Affect Your Credit Score

The inquiries section of your credit report contains a list of everyone who accessed your credit report within the last two years, including voluntary inquiries spurred by your own requests for credit and inquiries from lenders and other companies you authorized to order your credit report.

Inquiries as a result of a request you make for your own credit report won’t influence your credit score. But, inquiries from lenders and potential creditors can be a factor in your credit score. For instance, your credit score may drop if you apply for a new credit card. If it does, it probably won’t drop much. If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report. Several inquiries on your credit report may suggest to a lender that you could be having financial troubles or are on the verge of becoming too deep in debt.

Shopping for a mortgage or an auto loan may cause multiple lenders to request your credit report, even though you’re only looking for one loan. To compensate for this, the score ignores all mortgage and auto inquiries made in the 30 days prior to scoring. After 30 days, multiple inquiries relating to a mortgage or auto loan application in a typical shopping period are treated as one inquiry. That means that your credit score isn’t harmed by shopping around for the best car or home loan.
 

Opting Out

Credit card companies often access your credit report so they can send you applications for their credit cards.
  • You have the right to opt out of receiving these offers.
  • The Fair Credit Reporting Act (FCRA) gives you the right to opt out or stop credit reporting agencies from providing your name and address for marketing lists for credit or insurance.
  • Call 1-888-5-OPT-OUT (567-8688) or visit optoutprescreen.com.
  • Another option is to call the phone numbers that may be listed in your credit card privacy notices.

 
How to Get Your Free Annual Credit Report

To order your free annual report from one or all three of the credit reporting agencies, do one of the following:
  • Submit a request online at annualcreditreport.com.
  • Call toll-free: 1-877-322-8228.
  • Complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
P. O. Box 105281
Atlanta, GA 30348-5281


You can print a copy of the Annual Credit Report Request Form from annualcreditreport.com or ftc.gov/credit. You’ll need to provide:
  • Your name, address, SSN, and date of birth.
  • Your previous address if you’ve moved in the last two years.
  • Identifying information specific to you for security purposes (e.g., amount of your monthly mortgage payment).
  • Different information for each requesting company, because the information each agency has in your file may come from different sources.

In addition to the one free report a year, you may also be able to obtain a free credit report if:
  • Your application for credit, insurance, or employment is denied based on information in your credit report.
  • You’re unemployed and plan to look for a job within 60 days.
  • You’re receiving public assistance.
  • You have reason to believe your report is inaccurate because of fraud, including identity theft.

If you’re not eligible for a free annual credit report, a credit reporting agency may charge you up to $10.00 for each copy. To buy a copy of your report, contact one of the following:



Source: PlanningYourDreams.org
 

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