Chapter 8: Credit Reports & Scores

Credit Records

before granting you credit, a creditor will check into your past credit performance. Did you pay your bills on time? How much total credit did you receive? How much do you owe now and how large are your payments?

Credit Score

Credit bureaus as well as some larger creditors have point systems on which credit ratings are based. This rating is called the FICO score, after the company and men who developed the scoring system. In a point system, the credit bureau assigns points based on factors: amount of current debt, number of late payments, number and types of open accounts, percentage of credit currently used, frequency of credit checks, current employment, amount of income.

National Credit Bureaus

TransUnion Experian Equifax

Credit History

your credit history is the complete record of your borrowing and repayment performance. This record will provide answers to these questions and thus help the creditor determine your ability to pay new debts. May determine if you get the loan, may determine interest rates you are offered.

Evaluating Credit

Credit bureaus evaluate each consumer based on his or her credit history, amount of credit, and ability to take on additional debt. Often times, there are errors on credit reports. This is why you need to check regularly (get the free report every four months). It is hard to get errors removed from a credit report. Ultimately, the credit score is used to evaluate potential borrowers.

How Information is Gathered

Credit bureaus gather information from businesses, called subscribers, thay pay a monthly fee to the credit bureau for access to this information. Each subscriber supplies information about its accounts with customers including: names, addresses, credit balances, on-time payment record. Credit bureaus also gather information from many other sources, such as banks, insurance companies, and landlords.

Services Available Related to Your Credit Files

Credit guard services alert you to changes in your credit status. Credit freezing services stops people from accessing your file, which means you get no more credit until you unfreeze.

Your Credit File

Every person who uses credit has a credit history on file at a credit bureau. A credit bureau is a business that gathers stores, and sells credit information to other businesses.

Types of Information Stored

Public information becomes part of your credit record. Examples of activities that result in public information: failing to pay your property taxes, filing for bankruptcy, filing for divorce, applying for a marriage license, announcing the birth of a child, announcing a job promotion, being involved in a lawsuit. Information that you provide on a credit application becomes part of your credit record.

How Information is Used

When someone applies to a business for credit, the business (subscriber) asks the credit bureau for the applicant's credit report - it is electronic and instantaneous. Information in the credit report is then used as the basis for granting or denying credit. Usually credit grantors (banks and retail businesses), employers, landlords, and insurance companies have an interest in credit reports. Before entering into a financial agreement with someone, they want evidence that the person is financially responsible.

Credit Score Pt II

When your points are added up, they result in a credit score that tells potential creditors the likelihood that you will repay debt as agreed. Score is within a range of 300 to 850. The higher your score, the greater the chance you will be a good credit risk. The higher your score, the lower your interest ratemay be. You can improve your FICO score by eliminating disputes, paying off debts, closing unused credits, and not applying for credit unnecessarily.

Credit Report

a credit report is a written statement of a consumer's credit history, issued by a credit bureau to businesses. You can order a free copy of your credit report once a year online at the credit bureau's web site or by writing to the bureau. So get you can get an updated report every 4 months. When you are denied credit, you can get a free credit report if you ask within 30 days of being denied.