CREDIT

What is Listed in a Credit Report?

Credit reports are documents that list:

• Your identifying information

• Your debts and some of the bills you pay

• Public record information

• Your applications for new credit and other “inquiries” when lenders or other businesses request a copy of your credit report

Companies that make credit reports may be called credit reporting agencies, credit bureaus, or credit reporting companies. Equifax, Experian, and TransUnion are the three nationwide credit reporting agencies. If you have a credit history, you will likely have at least three separate credit reports.

In addition to the three nationwide credit reporting agencies, there are also "specialty" consumer reporting companies.

What is a Credit Score?

Credit scores are numbers based on information in your credit reports. Credit scores predict how likely you are to pay your bills and debts as agreed. There are multiple producers of credit scores. If you have a credit history, you will likely have several different credit scores.

People with better (higher) credit scores are likely to present a lower risk to creditors than people with lower credit scores. Higher credit scores indicate you have paid your bills and debts as agreed in the past and are likely to do so in the future.

Who Uses Credit Reports and Scores?

Credit reports and scores may be used by:

• Financial institutions

• Landlords

• Utility companies

• Cell phone companies

• Insurance companies, depending on state law

• Employers, depending on state law

• To learn if credit information can be used in employment decisions in your state, you can contact your state's department of labor.

• Some state agencies or affiliated organizations

Lenders must tell you if they used your credit reports or scores to make a lending decision about you or if they offer you less favorable terms than other borrowers based on your credit reports or scores.

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Scenario: Yardley Learns about the Importance of Having a Credit History

Yardley was convinced that credit reports did not matter. She did not plan to get a credit card or any kind of loan. She used cash for everything. Yardley recently moved and needed to find an apartment. Some landlords would not rent to her because she had no credit history, even if she promised to pay her rent each month in cash. When she found an apartment, she liked and a willing landlord, she had to pay a higher security deposit because she did not have a credit history.

She also had to pay a deposit for her utilities because she had no credit history. So, she decided to find out more about credit reports and why having no credit history seemed to create some obstacles and additional costs for her.

QUESTION 1

What would you tell Yardley about credit reports?

QUESTION 2

Do you think she should try to build credit? Or is she better off without a credit history? Be ready to explain your answer.

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The Basics of Credit Scoring

A credit score is a number calculated from information on your credit reports. Generally, the higher the number, the better your credit history. Credit scores help predict the likelihood that you will pay your credit obligations on time and as agreed. People with better (higher) credit scores are likely to present lower risk to lenders and other businesses than people with lower credit scores.

Two significant factors affect your scores:

• whether you repay your debts on time and as agreed, and

• how much you currently owe on each account compared to the credit limit or original loan amount. This is your credit utilization rate.

There are multiple producers of credit scores and each producer may have several types of scores.

What is a Good Credit Score?

Different lenders, businesses, and service providers use different criteria for what they consider to be a “good” credit score.

The higher your credit scores, the more likely you are to qualify for credit, rental housing, insurance, and, in certain circumstances, employment. Your credit scores can determine if you will be able to borrow money and how much it will cost you.

What Sections are in Credit Reports?

The credit reports from Equifax, Experian, and TransUnion look different from one another. They have different formats. Their credit reports have the same general sections in common, although they may not be in this order. The numbers in the circles below correspond to the numbers in the example credit report you will be using in an activity.

1. Personal or identifying information, which may be called consumer information

2. Public records

3. Accounts that have been assigned or sold, which may be called collections

4. Credit accounts, which may be called accounts, trades, or trade line

5. Inquiries

Errors on Your Credit Reports

There can be errors on your credit reports. The only way to know if there are mistakes is to get and review your credit reports regularly. If you do find an error, it’s important to file a dispute. Why? Mistakes could bring your credit scores down.

There are some common types of errors:

• Errors related to your identity

• Errors related to the incorrect reporting of account status

• Data management errors

• Balance errors

• Errors related to reporting outdated information

How to Dispute Errors on Your Credit Reports

There are two common ways to dispute errors on your credit reports:

• Option 1: Use online forms on the websites of Equifax, Experian, and TransUnion

• Option 2: Send a letter via certified mail, return receipt requested

After You File a Dispute

After you file a dispute, you will receive a letter from the credit reporting agency with the status. The incorrect information should not appear again, but it might. The dispute process takes time. Keep records, follow up, and don't give up.

Build, Repair, and Maintain a Productive Credit History

A Productive Credit History

A productive credit history means a credit history that helps you do the things you want to do.

For example, you may want to:

• Get a car using a car loan

• Buy a house

• Qualify for an apartment

• Get a job

Depending on your current situation, you may need to:

• Build your credit

• Build an alternative credit history

• Repair or improve your credit

• Maintain your credit

Credit Repair and Debt Consolidation

Understand what is provided by credit repair companies or debt consolidation businesses. Make sure you know what they are selling you.

• Credit repair companies

  • For a fee, these companies promise to fix your credit

• Debt consolidation businesses

  • They offer different services

Use Caution

Use caution when getting assistance. It helps to know the difference between debt consolidation and debt settlement. A debt consolidation loan is a new loan that you use to pay off some or all of the other debts you have. Debt settlement is working with your creditors to make payment arrangements.

Credit Repair Scams

Some businesses make promises about repairing your credit that they cannot deliver. Beware of credit repair companies that:

• Promise to erase bad credit or to remove other negative, but accurate, information from your credit reports

• Promise fast and easy credit repair

• Offer to create a new identity for you

• Want you to pay for credit repair services before providing any service

• Will not tell you your rights and what you can do yourself

Before signing a contract, check with your state’s attorney general’s office, or local consumer protection agency to see whether complaints have been filed against the company.