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Good credit is the key to a good financial future. Most Americans have become very aware of how their credit affects many aspects of their daily lives. We know that purchasing, or even renting a home, or apartment requires a review of your credit history. Having poor or no credit history can result in denial of housing. Some insurance companies base their Report 101
A brief history and background on the credit reporting industry
There are presently three credit bureaus that maintain the information that makes up each individual's credit profile or credit report. They are as follows:
Equifax Credit InformationServices, Inc. P.O. Box 740241 Atlanta, GA 30374 Tel: 800-685-1111 www.equifax.com | | Experian P. O. Box 9595 Allen, TX 75013-9595 Tel: 888-397-3742 www.experian.com | | Trans Union P. O. Box 1000
Chester, PA 19022 Tel: 800-888-4213 www.transunion.com |
Credit reporting agencies
Credit reporting agencies came into existence over 100 years ago. Retail merchants would collect information about their clients and then get together in groups or associations to share this information with one other. Over time these associations developed into bureaus. Consumers had very little input regarding the information these merchants maintained about them. This information was not available for them to review.
Agencies collected mainly negative financial information as well as bad lifestyle choices that consumers made. Anything harmful to your character that made into the newspapers or circulated in social circles could be added to a consumers file. When it became apparent that this information was being used to prevent people from getting services and opportunities, Congress got involved. In 1970 they enacted the Fair Credit Reporting Act (FCRA). It wasn’t until 2001 that consumers would have direct access to their credit scores.
Despite improvements introduced by the Credit Reporting Act (FCRA), many credit reports still contain errors. Based on a study by U.S. Public Interest Research Group, as many as 79 percent of credit reports have errors - 25 percent of which are serious enough to potentially result in a credit denial. More than half of the reports had information that was either outdated or belonged to someone else.
What makes it possible to correct inaccurate information in your credit files is the existence of legislation intended to protect the consumers. The names of these laws are as follows:
1. Fair Debt Collection Practices Act
2. Health Insurance Portability and Accountability Act
3. Fair Credit Reporting Act
4. Fair and Accurate Credit Transaction Act
These laws are what allow citizens to require verification for the derogatory items on their credit report. Legally, a creditor is obligated to provide documentation corroborating the derogatory items within a certain amount of time, usually about a month. If they fail to produce this documentation, they must immediately remove the disputed item from your credit report.
What is a credit report?
A consumer credit report is a document containing a factual record of an individual's credit payment history. Credit grantors are permitted by law to review credit reports to objectively determine whether to grant a consumer credit. Lenders usually report consumer credit payment information to the credit bureaus. Most of the information in a consumer credit report comes directly from the companies consumers do business with.
What kind of information does a credit report contain?
Your Experian credit report contains four types of information: identifying information, credit information, public record information, and inquiries.
Identifying information includes:
Your name
Your current and previous addresses
Your Social Security number
Your year of birth
Your current and previous employers
- If you're married, your spouse's name
Credit Scores: What They Are, Where They Come from, and What Affects Them?
A credit score is a three-digit number that is produced from an algorithmic model that interprets and scores the data contained in your credit report. Credit scores can range from 300-850. Most people fall within the 600-800 range. A credit score is designed to predict the likelihood that you will repay your credit obligations in a timely fashion. The current model used for credit scores is called a FICO score, named after The Fair I Corporation that came up with it.
What Affects Credit Scores?
Applying for a credit card, starting a new line of credit, or making your car payment are all examples of what can affect your credit score. Here is the breakdown of what influences your FICO score:
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1. Payment performance history (35%) | 2. Present level of indebtedness (30%) | 3. Age of credit history (15%) | 4. Pursuit of new credit (10%) | 5. Types of accounts in credit report (10%) |
Public record information includes any information that's contained in state and county court records, like:
Bankruptcies
Tax liens
Monetary judgments
Inquiries indicate to other credit grantors that you have applied for new credit, which could result in additional debt. Potential lenders may view multiple recent inquiries on your credit report as a sign you may be overextending yourself.
Inquiries indicate to other credit grantors that you have applied for new credit, which could result in additional debt. Potential lenders may view multiple recent inquiries on your credit report as a sign you may be overextending yourself.