The Credit Report


A credit report is a record of your debt paying history. This includes your history paying credit cards, mortgage loans, student loans, car loans, department store credit cards, etc.

The credit reports are compiled by companies called credit bureaus. The credit bureaus write your report based on information they get from companies that gave you credit in the past. The credit bureaus then sell your credit history to those who are interested in giving you credit, or interested in understanding your credit past.

What is in the Report?
The credit report includes such information as how much money you have borrowed, from whom you borrowed that money, how timely your payments were (did you make them on time or did you miss payments), how much credit you have available, if you ever filed for bankruptcy (which stays on your report for 10 years), and if there is a lien, or a claim against any of your property by a creditor.

Credit Rating
Based on the information contained in the report, you will be given a credit rating, which gives a score of your likely ability to pay future debt. This is sometimes known as the FICO score, which ranges from 300, being the worst, to 900, being the best. If your score is below 620, it will be difficult to borrow additional money or you will likely pay higher interest rates. Scores above 700 are considered very good.

The credit report is sold to credit card companies, banks, mortgage companies, or other financial institutions when you apply for a loan. They are also used in other cases when knowledge of your credit history is desirable, for example by landlords looking to rent you an apartment, or prospective employers. For obtaining future loans, if you have a good credit score, you will get better (lower) interest rates, resulting in lower debt payments.

Mistakes in the Report
It is important to maintain a good credit record. In addition, sometimes your credit report may have a mistake. Do not assume that if you see something you don’t remember that the information is correct. There are lots of chances for your credit report to have incorrect information.

If there is such a mistake, then you should fix the problem immediately, by calling and/or writing to each of the major credit bureaus. Keep a record of all your conversations until the mistake, and dispute, are resolved. Credit bureaus must respond within 30 days of a request to fix a credit error.

Improving your Credit Score
To improve your credit score, you need to show a good credit history. It is important to pay your bills on time, and keep your credit card balances low. Avoiding all credit would be unwise, because then you will not be able to show that you can manage your debt wisely, so having a small, manageable amount of debt, and then paying that debt off on time, is a good way to improve your credit score.

Free Credit Report
You may request a free credit report from any of the major credit bureaus. The Fair and Accurate Credit Transactions Act (FACT Act) is giving each consumer the ability to get one free credit report per year from the credit bureaus.

You may request your report online, by phone, or mail, however, eligibility for an free report depends upon your state of residence. Western states, including California, Colorado, Washington, Oregon, etc are already included. Midwest states including Illinois, Michigan, Ohio, etc are included from March 1, 2005. Southern States including Texas, Florida, Georgia are included from June 1, 2005. Eastern states including New York, New Jersey, Connecticut, etc are included from September 1, 2005. A centralized service has been created for consumers to request their annual report. See www.annualcreditreport.com for more information.

Since having a good credit report is so important, it makes sense to check your report often to be sure that it is correct. This is especially true before looking to get credit, for example before getting a car loan, or a mortgage on a house. Since you only get one free report per year from each of the credit bureaus, if you check one report from a single bureau every four months, then that will help you maintain a correct report.

Credit Bureaus
Here is a list of the three major credit bureaus:

Experian -www.experian.com
Equifax Information Services -www.equifax.com
TransUnion -www.transunion.com

 

For teaching about credit please see:
Credit Card Lessons

Learn credit card basics and credit card statements. Topics include credit cards, credit, and paying interest.

 

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