Credit reports were invented to help lenders judge whether to give credit to specific individuals, how much credit to give, and at what cost, or interest rate.
Credit Reporting Bureaus
Three companies-Experian, TransUnion, and Equifax – put together and sell to money lenders credit information on individuals. These companies’ credit reports include:
- Whether the individual has filed bankruptcy within the past ten years (Chapter 7) or seven years (Chapter 13).
- A list of all credit accounts in the individual’s name that are open today or were closed within the past seven years.
- A list of accounts in collections, for seven years since the most recent payment.
- Any “inquiries”-requests made by companies or organizations during the past two years for the individual’s credit report or score.
- Any judgments-a court decision that affects the individual’s finances-made against the individual within the past seven years.
- Any tax liens filed against the individual’s property. These appear on credit reports for fifteen years if the lien is unpaid and for seven years after the lien is released.
Credit scores were invented to make it easy for creditors to get a snapshot of an individual’s overall creditworthiness. Scores are based on an algorithm, or mathematical formula, developed by the company that computes and sells the credit score. Credit scores rely on information in an individual’s credit report at the moment the score is computed. So a score can change often, and it’s impossible to know why a score changed or to predict by how much a score will change because the score’s formula is a company secret. The top company in the credit scoring business is Fair Isaac jadwal bola Corporation, and its credit score-called FICO-is the most widely known.
Why Should You Care About This Dull Stuff?
- If you borrow money, the interest rate you will be charged depends in part on what’s in your credit report.
- Your credit score affects major costs like your insurance rates.
- When you apply for a job or an apartment the potential employer or landlord may, with your permission, obtain and review your credit report or score. You could be refused a job or apartment based only on your credit history.
- Your utility companies may get your credit report or score, and they may require that you deposit money with them if in their judgment you may not pay your bill.
What You Should Do
- About 20% of all credit reports include mistaken negative information. You can and should force removal of inaccurate negative information from your credit report. If you don’t do this, nobody will. Every American has the right to get a free credit report on themselves once per year from each of the three credit reporting bureaus. Reports can differ among the bureaus, so do this: Every four months, get your free credit report from one of the three bureaus. Rotate among the bureaus so you get the one free report from each bureau annually to which you are entitled. Review the report carefully. Follow the Federal Trade Commission’s procedures to force removal of any and all inaccurate negative information on your credit report.
- Reviewing your credit report every four months also will help you learn early if your identity has been used fraudulently. Have credit accounts been opened or credit inquiries made in your name? Act immediately to limit the potentially huge hassle identity theft can cause by following instructions in the FTC’s Consumer Alert on identity theft.
- In addition to the free annual credit reports to which you’re entitled, you also can get a free credit report if you’re denied credit, insurance, or employment because of your credit history or are the victim of fraud or identity theft.