Credit Report Basics
Your credit report is made up of your credit payment history and your profile. These reports usually contain data about your income, debts, and credit payment. Also include in the report are your any defaulted debts, outstanding cases, child support, or any filed bankruptcies.
Consumer reporting agencies maintains and sells these reports to the lenders. The Credit bureau is one type of consumer reporting agency. Currently, there are Transunion, Equifax and Experian credit bureaus. If you have applied for a credit account, charge account, a personal loan or a job, then for sure, you will have a record with these agencies.
Do I have a right to know what’s in my report?
Legally, yes you do have a right to see your credit report. Legally, you are entitled to a free credit report every three years and a free report annually.
What type of information do credit bureaus collect and sell?
There four types of basic information that credit bureaus sell. These are the following:
Identification and employment information: Your name, birthday, social security number, employer and spouse’s name are typically found in your report. Further information such as your employment history, home ownership, income and previous addresses may also be included upon request by the creditor.
Public record information: Bankruptcies, foreclosures and tax liens are all public records. If you have one in file and the creditor ask for it, this may be included in your report.
Inquiries: Credit bureaus are required to record all the creditors that have inquired about your credit history for the past year. It is better if you have a few numbers of inquiries.
Payment history: Your accounts with all your creditors are listed. These include your balances, and outstanding balances. Referral of an overdue account to a collection agency, charge off accounts and other delinquencies may also be included in your credit report.
What is credit scoring and how does it affect me?
To determine your creditworthiness, creditors used the credit scoring system. All the necessary information about you, especially your credit activities such as bill-paying history, number and type of accounts, late payments, collection actions, outstanding debts, account age are all recorded in your credit report. Credit companies then utilize your information and inputs it in an algorithm that computes your credit score.
Since your credit report is essential part of in your credit application, make sure that the information there is correct. To get a copy of your credit report, you may contact the three major credit bureaus: Equifax: (800) 685-1111?; Experian (formerly TRW): (888) EXPERIAN (397-3742)?; Trans Union: (800) 916-8800?. However, these companies may charge you around $9 for your credit report. Though you do receive a free one every year. To get your free credit report, you just go to “Free Annual Credit Report”. You don’t need to pay for anything since the law mandates that everyone should get a free credit report annually.
Why is credit scoring used?
Creditors used credit scoring to determine if individuals are creditworthy. Their worthiness is then based on the history of these individuals in terms of handling their previous and current credit.
What can I do to improve my score?
The models of credit scoring are complex. It may also differ among the creditors and types of credit. If one aspect changes, then your credit score may change. Improvement in your credit score essentially is dependent on how each factors relates to other factors computed by the model. Only your creditor may explain what you can do to improve your score under the model used to evaluate your credit application.
In general, credit-scoring models usually take into account the following information when giving you a score.
– Have you paid your bills on time? One major part of credit scoring is your payment history. Creditors usually check if you usually pay your bills on time, if you have collections and if you have declared bankruptcy. These kinds of scenarios don’t leave a good impression on your credit score.
– How long is your credit history? If you have a long history of keeping accounts, the more reliable you are as a borrower.
– Have you applied for new credit recently? Credit reporting agencies will usually take into account the number of times you have been inquired upon by creditors. Having too many recent inquiries doesn’t look good in your credit score.
– How many and what types of credit accounts do you have? Though it is quite positive that you have acquired several credit accounts, having too many credit accounts is not a good thing. Most credit scoring models consider the type of credit accounts you have, thus it is important if you limit credit cards to a good three to four number.
– What is your outstanding debt? If all of your credit card lines are maxed out, then it shows that you are not a wise credit spender. It is essential that you are not making using all of your credit at once. it is helpful if you remind yourself not to use more than 50% of your available credit on each credit card that you have.
What happens if you are denied credit or don’t get the terms you want?
The Equal Credit Opportunity Act requires creditors to provide a notice and a reason why your credit application was rejected. If your creditor gives a vague reason, remind them that it is illegal to give indefinite and vague reasons. Low income and short employment time are justifiable reasons for credit denial. On the other hand, not qualifying to our standards, or not having enough credit score are not viable reasons.
If your application was denied because of your current charges are bordering your credit limit, or your credit cards too many, then you may want to take care of these credit first. After paying down these balances and / or closing some credit accounts, then consider reapplying. Credit scoring do consider updated information and will definite change after a period of time.
If you didn’t get the rate or credit terms that you were vying for, then request your creditor to provide the credit scoring system that was used. Inquire what factors were considered in the credit score computation and what you can do to improve your score.
If your application was approved, inquire if you are getting the best rates and terms available. If you’re not getting the best rates, then ask why. You may not be getting the best rate because of inaccuracies in your credit report. Thus, if there is any inaccurate date in your credit report make sure that you file a dispute.
Fair Credit Reporting Act
To ensure that Credit Reporting Agencies are reporting accurate and complete credit report to businesses, the Fair Credit Reporting Act (FCRA) was created.
Under the Fair Credit Reporting Act, you have the following rights:
– Any credit company that rejects your credit application is required to provide the name and address of the CRA they contacted, provided the denial was based on the CRA’s information.
– When your application is denied due to information given by a CRA, then you have the right to a free copy of your credit report. Your request must be done within 60 days of receiving your denial notice.
– If your dispute is not determined to your contentment, you have the right to include a summary of explanation to your credit report.
– You have the right to get a copy of your credit report. The copy of your report must have all the information in your file at the time of the request.
– You have the right to know the name of anyone who has received a copy of your credit report within the past year for most purposes or in the last two years for employment purposes
If you have a contest regarding the accuracy and totality of your credit report, you should file a dispute with the CRA and the company that sent the information to the CRA. Both the CRA and information provider are legally obligated to investigate your dispute.