Everywhere you look on television, there are ads offering your credit report and others offering to give you your credit score. There is a difference between the two – one is a number that gives a snap judgment to creditors while the other provides the bigger picture. The more information you have about your credit report and score, the better off you’ll be when the time comes to request new credit or credit increases.
Your Credit Score
Your credit score is a number that ranges from 300 to 850 that creditors look at in determining your credit worthiness. The higher your credit score is, the better it looks to potential creditors.
If you have a higher credit score, creditors are more likely to assume that you pay your bills on time every month. A credit score is basically a snapshot of all of the information that your credit report contains.
Creditors use your credit score to make a quick decision on whether or not to extend credit to you. The score enables the creditor to forgo a careful review of your history and is based completely off of the information included in your credit report. If you have a high credit score, it is likely that a lender will extend credit to you. Conversely, if your score is low, the creditor may reject your application or give you new credit with higher interest rates.
If you find that your credit score is on the low end, print a copy of your credit report and weed out the negative marks that contribute to your low score. The more you pay your debts on time, the higher your score will be.
Your Credit Report
Credit Reports are documents that contain a detailed listing of your credit accounts and your history of repayment. These reports are generated by the three major credit reporting agencies: Equifax, TransUnion and Experian. Lenders provide information on your payment habits to the reporting agencies so that future creditors will know the type of borrower you are.
Your credit report gives the creditor a good idea of your character, reputation for repayment, credit standing and how you live in general.
While some creditors will look at your credit score in determining whether or not to extend credit, others will seek out information provided by your entire report. In other cases, creditors will look at both your score and credit report when making credit decisions.
Credit reporting agencies are for-profit businesses that sell information they’ve collected to mortgage lenders, banks, credit card companies, debt recovery companies and car dealerships, to name a few.
The three major credit reporting agencies are below along with their internet addresses:
Aside from these national companies, there are smaller companies out there that only gather information on specific types of behavior. Examples of these behaviors include writing bad checks, rental histories and medical histories.
You may have heard the terms “credit reporting agency,” “consumer reporting agency,” or “credit bureau.” These three terms are synonymous in that they all describe the same thing.
Consumer Protections in the Fair Credit Reporting Act
The Fair Credit Reporting Act (FCRA) is a law that was originally passed in 1970 that requires credit reporting agencies to ensure that your credit information is free from inaccuracies, private and fair. The FCRA also protects your rights as a consumer to access and correct your credit report. The FCRA covers any creditors who provide information to the credit reporting agencies as well as those who use your credit information for the purposes of employment, insurance or credit decisions. If any user of your credit information rejects an application for credit, the FCRA dictates that they have to notify you if their decision is based on information found in your credit report in addition to the credit reporting agency or creditor who provided the report. This communication is most commonly done through the mail when a credit application is denied.
The FCRA also states that you are allowed to receive a free copy of your credit report once every twelve months if you request it. To obtain a copy of your credit report, go to the website of one of the three reporting agencies, enter your personal information (or answer questions specific to your previous addresses or loans) and request your copy today.
If you aren’t ready to dissect the information in your credit report, you may also request a sample credit report in order to familiarize yourself with the information each agency provides.
Credit reports contain important information that creditors use in deciding on whether or not they wish to extend credit to you. The information contained therein may affect your interest rates, approval for credit cards, rental applications and employment applications. It is in your best interest to obtain a copy of your report so that you know what type of picture it paints about you as a consumer.