BASIC CREDIT INFORMATION
The Consumer’s Basic Credit Primer
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Understanding your own credit and what your credit data means to lenders is more important than ever before. What is a credit report, and what does it include? What is a credit score, and what does it mean? And, how can you improve your credit data and credit score? These questions and more are answered here.
Credit Reports–what are they and what do they include?
A credit report is a record of your financial behavior. Three national credit reporting agencies–or bureaus–maintain these records. They are Equifax, Experian, and Trans Union.
Credit reports (also known as your credit file, credit profile, or credit history) contain:
Your identification , including your name, telephone number, and address, as well as your Social Security Number, birth date, and employer. (The information usually includes previous addresses and employers too.)
Your credit history, which details how you pay your bills to banks, credit unions, finance companies, mortgage companies, and retail stores.
Any existing public records , such as bankruptcies, judgments, and tax liens.
Inquiries , or authorized credit checks by companies receiving your applications for credit, or your name for the purpose of offering you credit.
Your business accounts, medical history, purchases paid by cash or check, as well as your gender, national origin, race, and religion are not contained in a credit report.
When you apply for loans, credit cards, and/or leases, issuers review your credit report while evaluating your application, as well as your credit score(s). Today, some employers review the credit reports of applicants. Your credit also may be checked to qualify you for overdraft protection as well as to determine your ATM limit. Also, some insurance companies check their customer’s credit data when considering applicants or even setting premiums.
The information on your credit report detailing each of your accounts is sent to the credit bureaus by lenders. Also, information is obtained from public records, or provided by consumers themselves. Information usually remains on credit reports for seven to 10 years from the date the account is paid and/or closed, except for adverse information. Adverse information usually is recorded for seven years and generally includes late payments and other delinquencies as well as any civil judgments and bankruptcies. Unfiled tax liens may remain on credit reports indefinitely.
Credit Scores–what are they and what do they mean?
A credit score is a numeric indication of how likely you are to repay debts such as loans or lines of credit. Credit scores also are designed to indicate your creditworthiness in comparison with other consumers. Credit scores are based on the data in your credit report and are generated by computers using artificial intelligence. Although it seems odd, credit scores usually range from 300 to 900.
Many types of credit scores are used, including custom scores. In addition, each lender requires different score minimums for application evaluation and approval. And, lenders may review several credit scores.
Because no one score is the definitive credit score, 720 and above is generally considered a high score, while scores below 585 are considered low. Still, cases always vary by lender. And, because so many different scoring methods are used, a score of 750 from one source may not indicate the same as a score of 750 from another.
Lenders always obtain the most recent score whenever an applicant applies for credit because each person’s score changes every time information is added (reported) to credit bureau files. For example, your credit score may change when you pay a credit card bill, make a loan payment, or open a new line of credit.
Credit scoring is based on many factors that may include:
• Payment history
• Amount of available credit
• Amount of credit currently being used
• Length of credit history
• Recent requests for credit
• Under the Equal Credit Opportunity Act, credit scoring may not use gender, martial status, national origin, race, or religion as factors.Of course, lenders usually do not base credit decisions solely on credit scores. Lenders usually make other considerations, such as income and length of employment at current employer, when evaluating applications.
Also, many consumers do not realize that achieving the best credit scores may take 20 to 30 years because lenders consider older credit histories optimal.
Credit score disclosure–finally, a turning point
Until 2001, credit scores usually were not disclosed to consumers. In fact, large credit scoring companies previously prohibited lenders from disclosing specific scores, explaining that the methodology used to create scores is often too complex to understand or even explain.
But, today’s consumers demand to know their credit scores–and understand them. While pending legislation may eventually provide credit score disclosure, consumers still struggle for access as well as information and knowledge. Current laws only require credit score disclosure to consumers when applications are denied. The law also requires lenders to provide the reasons for denial, called “adverse action notification.” And, denied consumers are entitled to a free copy of their credit report. Meanwhile, California state law mandates credit score disclosure to California residents.
More than two years ago, however, a turning point began. Some lending institutions attempted to disclose credit scores to consumers, but scoring companies effectively shut down these efforts.
In response, CreditXpert Inc. pioneered the CreditXpert Credit Score(TM) and CreditXpert Credit Analysis(TM) for score disclosure to consumers.
The CreditXpert Credit Score(TM) is based on the same criteria commonly used by banks, mortgage lenders, and loan companies when scoring applicants, providing an essential point of reference and an invaluable tool for managing credit. With the CreditXpert Credit Score(TM), consumers can significantly enhance their awareness of their personal credit position.
Because credit scores alone are meaningless, the CreditXpert Credit Analysis(TM) was designed to help consumers understand, manage, and even improve their credit. This personalized analysis explains each consumer’s unique credit report data, revealing how lenders view a consumer’s own financial behavior. The analysis also identifies the positive as well as the negative factors influencing a consumer’s personal credit– in fact, CreditXpert(TM) was the first credit analysis to identify both.
Like all credit scores, the CreditXpert Credit Score(TM) is a snapshot of a consumer’s credit position at a given period in time. So, with CreditXpert®, consumers can focus on improving their credit, and measure their success again later with the CreditXpert Credit Score(TM). And, because CreditXpert(TM) was designed exclusively for consumer credit score disclosure, there are no roadblocks, no mystery, and no confusion.
Improving credit scores–what helps?
Remember, your credit scores are based on your financial behavior, so good behavior is key to maintaining good credit scores as well as improving your current position.
By observing the following guidelines, consumers can influence their credit position for the better:
Always pay all of your bills on time. This proves your reliability and demonstrates consistent behavior and responsibility.
Check your credit reports regularly and correct inaccuracies. Verify that the information reported about you is correct. Dispute anything incorrect with each of the credit bureaus immediately. Some disputes may require contact with financial institutions too. While it is best to document your disputes in writing, bureaus and some institutions also provide customer service by telephone.
Monitor your accounts for fraud and or signs of identity theft. Simply review each statement and verify that all bills are authorized, accurate, and your own. Guard PINs and account numbers, and always report unauthorized activity immediately. It is a good idea to maintain a list of your account numbers and their corresponding toll-free, 24-hour customer service numbers in a handy, secure place separate from of your wallet in case it is stolen or lost.
Control your debt. Generally speaking, keep balances below 50 percent of available credit lines.
Manage your available credit. Lenders may conclude that applicants with multiple accounts, all with high credit limits, may have too much access to excessive unused credit that could result in the sudden or gradual accumulation of too much debt.
Don’t try to change a score overnight by suddenly closing or opening accounts. Scores are based on complex statistical models that could make such actions backfire.
Avoid excessive inquiries. Inquires indicate applicants are submitting applications, generating multiple requests for their credit report. Creditors may view too many inquiries as a sign of financial trouble.
Beyond these essentials, credit is unique to every individual.
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