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About Credit Reporting

As important as credit reports are, it is amazing how little the average consumer knows about their report and how information on the report is accumulated. Suffice to say, if you have ever had any credit, you have a credit report. And, if you expect to apply for any further credit, your credit report will play a role in the credit approval or rejection decision.

Credit reports are not credit scores. Credit reports are compiled by the three major credit reporting agencies (CRAs); Equifax, Experian and TransUnion. Most lenders in the US have relationships with at least one of these CRAs. When a consumer applies for credit, the lender requests a credit report from the provider and it is entered into the application file for review by a decision maker.

Reviewing Information on Your Credit Report

The three leading CRAs are private, for-profit companies whose product is to provide consumer-based credible credit reporting to subscribers who tend to be lenders and credit providers. The three CRAs do not share information so it is possible that credit reports can have different information and even erroneous data.

Every consumer in the US is entitled to one free credit report from each CRA every year. Some states permit additional free reports. Consumers who do not obtain these reports and check the listed information are making a mistake. Discrepancies do occur and consumers have legal rights under the Fair Credit Reporting Act (FCRA) to file complaints about any and all inaccuracies. Given that inaccurate credit information could lead to a rejection of credit, the time and effort spent reviewing your credit report is certainly worthwhile.

If a consumer files a complaint, FCRA mandates that the CRA must investigate and respond within 30 days.

Who Uses Credit Reports

Consumers are often surprised by who views their credit report. CRA subscribers include:

• Creditors

• Insurance companies

• Government agencies

• Potential employers

Yes, it is possible that you could be denied a mortgage or your dream job because of information on your credit report. Credit reports are divided into different sections:

Personal Information – Your legal name, address, date of birth, Social Security number. Do not take this information lightly. Mistakes happen here.

Accounts – Under this section, all you past and current credit accounts are listed as well as account details. Check the following information for each account.

• Lender name

• Lender account number

• Date account originated

• Date account closed

• Original balance

• Current balance

• Monthly payment amount

• Payment history

• Current status

• Credit limits

It is important to understand that credit reports are compiled when they are requested. It often takes 30 days for recent changes or payments to be reflected.

Public Records

In this section, consumers are often surprised by what they find. It is very important to review this section for accuracy. Included in the public records section are such events as:

• Civil judgments

• Bankruptcies

• Federal tax liens

• State tax liens

• County property tax liens

• Collection accounts

This information is sensitive. Usually the information is dated which can give the consumer insight into when negative data will be removed from the credit report. Verify the balances and dates are correct.

Relationship Between Credit Score and Credit Report

Your credit report is important but so is your credit score. You are not entitled to a free credit score every year. However, many online credit score providers offer free credit scores and periodic credit advice.

The credit score is a reflection of how the information on your credit report is interpreted. Credit scores predict whether consumers are good credit risks or bad credit risks. The higher the consumer’s credit score, the better risk the consumer is. Lenders like good credit reports and good credit scores. However, it is the consumer’s responsibility to ensure the credit report has accurate information to generate a reliable credit score.