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Credit reporting 101Who keeps track of your credit?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. 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 reporting works and what your credit report contains. 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 individual lenders 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 providing nationwide coverage of consumer credit information in the United States: ExperianEquifax, , and TransUnion. 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. Therefore, 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:
What is a Credit Risk Score? A credit risk score is a statistical summary of the information contained in a consumer's credit report. Sophisticated mathematical processes calculate scores 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. You can order a copy of your credit score here. 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. How long Does Information Stay on My Credit Report? Positive credit information remains on your report indefinitely, although information about an account will cycle off your report if no new information is reported about it for seven years. (Thus, a closed account will disappear from your report seven years after it is reported closed by the credit grantor.) Most negative information remains for up to 7 years. Bankruptcies can remain on your credit report for up to 10 years. Other public record information can remain for up to 7 years. Most inquiries stay on your credit report for up to two years. What Is a Mortgage Report? A mortgage report is a special credit report that lenders use prior to deciding whether or not to extend 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. What Is an Employment Report? 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. By law, you have the right to obtain your own reports at a reasonable price. Before they can access consumer credit information, businesses must offer proof that they will be using the data for no other purpose than that allowed by federal law. |
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