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What is a Consumer Credit Report?
Imagine you had a friend ask you if they could borrow a substantial amount of money. What would you want to know about this friend? Chances are you would have quite a few questions. You might want to know what they need it for, when they would pay it back, how they will pay it back, if their proposal to pay it back sounds reasonable. But you would also base your decision on some experiences you have had with this person. You would reflect on how trustworthy you have found this person to be. You would want this person to have a proven track record of keeping promises. You might base your decision on how long you've known this person, or what you know their job history to be.
The bottom line is, you would want to know what the credit industry terms the three C's of credit: Character, Capacity, and Collateral. Character determines what type of person they are. How stable is your friend? How long do they stay in one place? What is their work history? Do they keep the promises they make? Capacity tells us what they are able to do with their money. What other obligations do they have? What is their income? How stable is their employer? What is the likelihood of regular pay increases? Finally, collateral tells us what they can use as security, should they not be able to make payments any more. Do they own anything of value that they would be willing to turn over in cases of nonpayment? Since lenders don't have the advantage of knowing consumers on a friendly basis, they rely on credit reports to tell them about an applicants credit worthiness.
A credit report includes information like: All of your credit information including balances and payment histories for up to five years, your employment information, any public records related to tax liens, monitary judgments, in some states delinquent child support payments, and bankruptcies. This report allows lenders to determine your character, capacity and collateral and make informed decisions on whether or not to extend you credit. What else is in a Credit Report? In addition to credit information, your credit report includes: your name including your generation, nicknames, current and previous addresses, your Social Security number, year of birth, current and previous employers, and if applicable your spouses name.
What can a Credit Report be used for?
The main purpose of the credit report is to provide the lender with a decision making tool in deciding whether to grant credit. However, credit reports are frequently used for much more than that. Employers can pull your credit report to determine if they would like to hire you or change your job status. If you are trying to rent property, the landlord may pull your credit report to see how you manage your money. Insurance companies can also pull your credit report prior to insuring you.
The Fair Credit Reporting Act stipulates that a credit report can only be issued to a party with a legitimate business interest in the report. This protects your right to privacy. Lenders can purchase your credit report information from the credit reporting agencies for the purpose of an inquiry. They may purchase your name and mailing address to send you a credit offer. Many of these offers come in the form of "Pre-approved" credit cards. This report will often be much shorter containing access for only the last two years for employers and six months for credit grantors. The recent changes in the Fair Credit Reporting Act do protect you from having this information sold to potential lenders should you choose. Simply call each of the reporting agencies and request to "Opt Out". TransUnion: 1-800-680-7293 Equifax: Experian: 1-800-353-0809.
(Do not expect the pre-approved offers to stop immediately. You will need to allow about six weeks for your name to circulate out. This will not stop all offers as there are other sources for purchasing this information.)
Who writes your Credit Report?
Essentially the credit reporting agency is a clearinghouse for the information that credit grantors send them about consumers. They submit your payment history and account balance information to the reporting agency, and the agency simply compiles all of the information under your name into a report. The credit reporting agency does not "rate" you as a good or bad credit risk. Nor do they take part in any of the decision making about who is or is not going to be extended credit. So very basically, you write your own credit report based on the way you manage your money and credit. If you pay all of your accounts on time, that's how it will be reported.
What do you need to know about your Credit Report?
Everything! To protect yourself from fraudulent credit activity and errors on the part of the reporting agency or your creditors, you should pull your credit report at least one time per year. Review your report in detail. This will tell you if anyone is using credit in your name, or whether your accounts are being used without your knowledge, with the billing statement being sent to a different address.
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