You are most likely already familiar with the concept of "credit," the
reputation for paying your bills on time that makes it possible for you to obtain money or
goods with the understanding that you will pay for them later.
In fact, you probably have already put your credit to work for you. You employed it when
you obtained an auto or student loan, used your credit card to pay for a trip or new suit,
or were chosen as the tenant for your rented apartment or house. A solid history of paying
your bills may also have been just the objective character reference needed to help you
land your job, too.
But even if you use your credit every day, you may have questions about the credit
industry and how it affects you. In today's society, credit is much more complicated than
keeping a tally at the local grocery. As a credit-active consumer, you need to know how
credit decisions are made.
What Is A Credit Bureau?
A credit bureau or credit reporting agency is in the business of gathering, maintaining,
and selling information about consumers' credit histories. It collects information about
consumers' payment habits from credit grantors like banks, savings and loans, credit
unions, finance companies, and retailers. The credit bureau stores this information in a
computer database and sells it to credit grantors in the form of credit reports. When you
apply for a new credit card or loan, the credit grantor orders your credit report from at
least one credit bureau and analyzes the information to decide whether to grant you
credit. The credit bureau charges the credit grantor a fee for every credit report sold.
Although credit reporting agencies provide your credit report to lenders when you apply
for credit, they do not make actual lending decisions. It is up to the lender to evaluate
your credit report and any other factors they consider important and then decide whether
or not to offer you credit.
The Three Consumer Credit Bureaus
There are three major credit bureaus that provide nationwide coverage of consumer credit
information in the United States: Equifax, Experian, and Trans Union. Although many
national lending institutions report consumer credit information to all three, smaller
banks and other credit grantors may report to only one-or even none. That's why your
credit report from one credit bureau is not necessarily exactly the same as your credit
report from another.
What Exactly Is A Credit Report?
A consumer credit report is a document that contains a factual record of an individual's
credit payment history. Credit grantors are permitted by law to review your credit report
to objectively determine whether to grant you credit. There are 190 million credit active
people in the United States who have a charge account, car loan, student loan, or home
mortgage. As those people pay their bills, most lenders report credit payment information
to credit bureaus. So most of the information in your consumer credit report comes
directly from the companies you do business with.
What Information Does A Credit Report Contain?
A consumer 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 information includes credit accounts or loans you have with:
- Banks.
- Retailers.
- Credit card issuers.
- Other lenders.
Most information, whether positive or negative, remains on your credit report for 7 years
from the date it is first reported, and then cycles off automatically. If there is
inaccurate information in your credit report, you have the right to dispute it and have it
removed.
Public record information includes any information that's contained in state and county
court records, like:
- Bankruptcies.
- Tax liens.
- Monetary judgments.
Bankruptcies can remain on your credit report for up to 10 years. Other public record
information can remain for up to 7 years.
Inquiries indicate to other credit grantors that you have applied for new credit that
could result in additional debt. Potential lenders view multiple recent inquiries on your
credit report as a sign that you are overextending yourself. Most inquiries stay on your
credit report for up to two years.
(A credit risk score may also be included when your report is provided to a credit
grantor, although it is not included on consumer review reports. The ways to calculate and
use a credit score vary widely, so a score has little meaning outside of the context of a
particular lender's unique guidelines for use. Therefore, it is not included on consumer
review reports.)
What is a Credit Risk Score?
A credit risk score is an assessment of an individual's credit worthiness based on a
statistical analysis of the information contained in his or her credit report. The most
well known type of credit risk score is the Fair, Isaac or FICO score. Sophisticated
mathematical processes calculate the summary by assigning numerical values to various
pieces of information in the credit report. Credit bureaus provide risk scores to credit
grantors who use them to objectively evaluate an applicant's credit-worthiness. The score
itself is relative and will be viewed differently by creditors depending on numerous
factors, including the creditor's risk level, marketing goals, and business practices.
Your risk score will change over time as your credit history develops.
Does A Credit Report Contain Other, Unrelated Personal Information?
No. Your consumer credit report does not contain information about your race, religious
preference, medical history, personal lifestyle, personal background, political preference
or criminal record.
What Is A Mortgage Report?
A mortgage report is a special credit report that lenders use prior to deciding whether or
not to give you a home loan. Each report is compiled from credit reports from two or three
credit bureaus. The mortgage credit reporting company purchases credit reports from the
credit bureaus, combines them, and manually verifies specific information such as
employment, credit account balances and public record information.
An employment report is a modified credit report that helps potential and current
employers make hiring and promoting decisions. The employment report contains much of the
same information about your loans and credit cards that your credit report has listed.
However, your marital status, year of birth, and account numbers are omitted from the
employment report.
Who May Check My Credit Report?
Federal Law carefully regulates how credit reports can be used and by whom. Individuals
have the right to obtain their own reports, and businesses must meet the following
requirements before they can access credit information:
- A background Proof of a permissible purpose under federal law
- Check and on-site inspection of the business
- A current business license
- A signed contract requiring the business to use the data properly
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