Understanding your credit report
Most people have heard of credit reports, but many do not fully understand just how important they are. Your credit reports are used by lenders not only to determine if you will get a loan or not, but also to determine what interest rate you will pay on those loans. Credit reports are vital to your credit health, and you should learn more about them.
Everyone should understand that credit reports are not the same as credit scores. Your credit score is a three-digit number that is determined by the information contained in your credit reports. Also know that your credit report is not one single document, but three. In other words, there are three companies that maintain your credit reports. TRW, Trans Union, and Equifax are the three big ones. Each of these agencies maintains about 170 million credit files on individuals based on 2 billion items of information.
As you might imagine, mistakes can and do happen, which is why you must review your reports to make sure that they are accurate. By law, consumers are allowed to order one copy of their report from each agency each year. This can be done online or by mail. Generally, it is wise to review your reports annually. When you go over your credit reports, make sure the personal information is correct. This information is collected only for identification purposes and includes your name, current and previous addresses, Social Security number, your birth year, employer, and the initial of your spouse's first name if you are married.
You should know that any information regarding race, gender, religion, salary, medical history, personal assets, personal background information or lifestyle, and criminal record is not to be collected. In addition to the personal information, the three major credit bureaus also gather information supplied by your creditors. This includes how much credit you have available. It will also include whether you have had any 30- or 60-day late payments and if any past accounts had to be referred to a collection agency.
Credit reports may also include certain information that may be part of the official legal public record. This may include such things as bankruptcies, foreclosures, liens and any types of legal judgments. Bankruptcies remain on your credit report for ten years. Other negative information remains on your reports for seven years. By using this information, a credit score is determined. In simple terms, the higher your score is the better. While a low score may not preclude you from getting a loan, it may mean higher interest rates on that loan.
All consumers should understand that if they are denied a loan because of information on their credit reports they are entitled to a free copy of the report. Federal law mandates that the credit bureau which prepared the report send you a free copy if you request one within 30 days after your credit application was denied. The three major nationwide credit bureaus are TRW (1-800-682-7654), Equifax (1-800-685-1111) and Trans Union (1-800-888-4213).