What is a Credit Report?

Whenever you apply for any type of credit or financing, a credit report is pulled from at least one of the three major credit bureaus. While there are hundreds of smaller credit bureaus around the country, virtually every credit bureau is affiliated with Trans Union, Experian, or Equifax. These credit bureaus collect and maintain information on the vast majority of Americans, but they are not affiliated with the government in any way. The credit bureaus are for-profit corporations that sell your personal information for money.

The credit bureaus receive your personal information through the same lenders who grant you credit. They have agreements with each of these credit grantors that require the credit grantor to inform the credit bureaus of everything that occurs in your relationship with the credit grantor. If you make a payment late, the negative credit listing is quickly reported to at least one of the three major credit bureaus and is added to your credit history.

Credit reports are not just a record of how you are currently managing your credit accounts. Credit reports are histories of everything you are doing with your credit now, and everything you have done in the past. The credit bureaus collect this information, list it on your credit report, and then sell it to credit grantors who wish to see your credit history before they decide to lend you money. The credit grantors who review your credit are especially interested in any negative credit. If you have shown any tendency to pay late, or to disregard your financial commitments in the past, then the creditors' computers will immediately reject your application. Just like when you were in grade school, your credit report is your financial report card to the world.

What Kind of Information Appears on the Credit Report?

Merchant Trade Lines These include all regular credit lines such as department store cards, auto loans, mortgages, and credit cards. If there is any history of late payment, or if the trade line was included in bankruptcy, charged off, or put into repossession, the listing will be considered negative by all credit grantors.

Collection Accounts When an account is referred to collections because of delinquency or because of a bad check, this appears on the credit report as a collection account. Collection accounts can appear as paid or unpaid accounts. Any type of collection account, whether paid or not, is considered very negative by all credit grantors.

Public Records Public records include bankruptcies, judgments, liens, satisfied judgments, and satisfied liens. All court records, including satisfactions, are considered negative by all credit grantors.

Inquiries Every time a potential credit grantor looks at your credit file, a credit inquiry appears on at least one of your credit bureau reports. If the number of inquiries is very few over the last two years, then there may be no negative effect on your credit worthiness. However, if there are many recent inquiries showing on your credit report, credit grantors may become nervous and deny you credit.

How Long Will Negative Information Stay on My Credit Report?

The Fair Credit Reporting Act (FCRA) requires that most negative credit items be deleted from your credit bureau file in no more than seven years, except for a Chapter 7 bankruptcy which can be reported for up to ten years. These are the time limits for reporting negative credit. The creditor or the credit bureau can choose to have the negative credit information deleted whenever they please. Inquiries may remain on the credit report for up to two years.  Their is a professional credit repair company that can help you with this.

Can I See My Credit Report?

Most credit grantors are not allowed by the credit bureaus to show you your own credit report. But you can purchase your credit report from the credit bureau for a fee. Once you receive your credit report, you may find that you cannot read it because the information is listed in an unfamiliar code. Trans Union and Equifax credit reports are particularly difficult to interpret and understand. Experian credit reports, however, are relatively easy for most people to read. Your best bet would be to order a 3-in-1 combined bureau report since they are the easiest to read.

How Much Bad Credit Does it Take for Me to be Denied Credit?

As you may have already experienced, even one small late pay listing may result in credit denials. It is a myth that a large amount of positive credit can outweigh some negative credit. Any negative credit whatsoever can become a substantial credit obstacle.

Who Looks at My Credit Report?

With the passing of each year, your credit report is used more and more often as a yardstick to measure your character. Prospective creditors will always review at least one of your credit reports before granting you credit. Today it is increasingly common for insurance companies to review your credit before extending auto or health insurance. Many employers now check credit before they consider you for a position. If you rent, you may have already been through a credit check to determine your worthiness as a renter.

Can Bad Credit be Deleted?

Yes, it can. Despite the fervent proclamations of bureaucrats and credit bureaus everywhere, a simple fact remains: negative credit listings are deleted from peoples' credit reports by the thousands each and every day.

A few years ago, an attorney  visited with a regulatory agency for a casual conversation with two agents. The Agency's office, as a matter of course, believed the credit bureaus' claim that bad credit couldn't be deleted. The visiting Lexington attorney asked, "How many negative listings would you have to see deleted from consumer credit reports before you would believe that bad credit can be deleted: ten? fifty? a hundred? one thousand?" The agents responded with only blank stares.

"How about 50,000 deleted listings, would that convince you?" continued the Lexington attorney. From his briefcase he pulled a stack of papers six inches high.

"In these pages, we have listed the permanent deletion of over 50,000. listings from our clients' files in the last two years alone," he explained. The agents pulled the stack across the conference table and began to pick through the pages, taking in the massive list.

"But have you deleted any bankruptcies?" shot back one of the agents, "we know that bankruptcies can't be deleted." The Lexington attorney leaned across the table and ran his finger down the first page.

"There's one deleted bankruptcy... and, there's another,... and another,... and another. Should I go on?" asked the Lexington attorney.

The agents sat back in their chairs. "You know," began the junior agent, "I have this one listing on my credit report that simply must belong to somebody else..."

How is credit repair possible?

The Fair Credit Reporting Act (FCRA) allows a consumer to challenge the information on his credit report on the basis of "completeness and accuracy." When a consumer files a dispute, the credit bureaus must contact the source of the credit information (the creditor) and confirm that the information is accurate, verifiable, and not obsolete. In some circumstances, the credit bureau is required to go beyond a simple verification of the creditor's own computer record. If, within 30 days, the credit bureau has not received verification from the creditor, then the credit bureau must promptly delete the credit listing.



Drivers at the bottom of the credit heap file 40-percent more claims than drivers at the top of the credit heap, according to a study by the Insurance Information Institute.

Consequently, having black marks on your credit report could really bump up your auto insurance rates.

"A consumer with bad credit is going to pay 20- to 50-percent more in auto insurance premiums than a person who has good credit," says Clarence Smith, assistant vice-president at Conning & Co.

On the flip side, if you have sparkling credit you could land lower insurance rates by shopping around.

Here's why. Most auto insurance companies use credit data when underwriting new customers. Far fewer, just 14 percent of the nation's largest insurers, use credit data on contract renewals. And some states don't allow this practice at all.

So if you've been with your auto insurer for a while, there's a good chance your shiny credit record could land you a lower insurance rate at another company.

"Obviously, consumers with good credit are going to be in the best possible position," Smith says.

"If you know you have good credit, you may want to shop around. Even with an accident, you could qualify as a preferred customer with some insurance companies."

A study by the Casualty Actuarial Society shows that people with prior driving violations or accidents and good credit have much better loss ratios than people with clean driving records and a bad credit history.

An auto insurer prices policies based on a customer's potential to file a future claim. So someone with a flawed driving record and clean credit record could actually end up paying less for auto insurance than someone with a spotless driving record and a spotty credit record.

Credit isn't the main driver
Keep in mind, a credit record is just one of several factors that an auto insurer considers when pricing your policy. Other factors include your age, the type of car you drive, how many miles you drive and whether you live in an urban or rural area.

Just how big an impact your credit record has on your auto insurance bill varies -- based on the state you live in and the insurance company you choose.

"Good credit at one company may not be a good insurance score at another company," Smith says. "That's why it's important to shop."

Insurance is regulated at the state level. Some states allow auto insurers to use credit data in the approval process. Others allow insurers to use credit data when determining what rate class a driver falls into. Some use it for both.

For more information, contact the insurance department in your state. This map from the National Association of Insurance Commissioners links to each state's insurance department.

Insurance score secrets
Your insurance company doesn't actually peek at your credit report. Instead, it receives an insurance score from a credit bureau based on the information in your credit record.

Fair, Isaac and Co. provides the credit bureaus with the formulas to crunch insurance scores. Some insurance companies have their own scoring models.

Like a credit score, an insurance score is based on information found in a consumer's credit file. But the formulas used to arrive at the two types of scores are quite different.

"An insurance score is going to be less concerned with your propensity to take on new credit and more interested in how long you've been managing credit," says Craig Watts, a spokesman for Fair, Isaac and Co.

"Insurance scores focus on issues of stability."

Curious about your insurance score? Good luck finding out. Insurance companies aren't required to tell, and few do.

"I don't know anybody who will show you an insurance score," says Gerri Detweiler, author of The Ultimate Credit Handbook. "It's still a bit of a mystery to consumers."

Even if you could find out your insurance score, it might not be all that helpful. Yes, it could give you a sense of how a single auto insurer rates your credit record, but that's it.

When it comes to insurance scores, there's no uniform standard. So another insurance company, using another scoring model, could assign you a different insurance score and offer you vastly different rates.

The key thing to realize is your credit record does affect the cost of your auto insurance.

If you're having credit problems, it's best to stick with your current auto insurer until your credit record improves. If you must shop for a new auto policy, ask the insurer if they use credit data in their decision-making process. Not all insurance companies do.

You may be better off doing business with a company that doesn't use credit data when underwriting new customers.

It's also a good idea to check your credit report before shopping for auto insurance.

Sometimes desperate times call for desperate measures. But times must be desperate indeed if you have to pay triple-digit interest rates for a small, short-term loan, particularly when it means risking the loss of your car.

Unfortunately, a growing number of Americans who find themselves in a financial bind are turning to car title loans, a source for quick money that could end up costing them their vehicle, often the most valuable thing they own.

Title loans are marketed as small emergency loans, with the customer handing over his or her car title and an extra set of keys as collateral. A typical car title loan has a triple-digit annual interest rate, requires payment within one month and is for much less than the value of the car.

"Title loans trap borrowers in perpetual debt through unaffordable balloon payments, high interest costs and the threat of repossession," says Jean Ann Fox, director of consumer protection at the Consumer Federation of America.

Car title lenders generally require prospective borrowers to have free and clear title to the car before giving a loan. The lender then decides how much the consumer can borrow, based on the vehicle's value. The loan-to-value ratio is rarely greater than 33 percent, making it a win-win situation for the lender if the borrower defaults.

Title loans usually carry an interest rate of about 25 percent for 30 days. And, if you can't pay off the loan at the end of 30 days, it will roll over with the same interest rate. That works out to about 300 percent annually. A $500 loan on the first of the month turns into a $625 debt at the end of the month.

The possible loss of your car makes these loans dangerous. "If you lose your car, everything else just cascades," says John Ruoff, director for South Carolina Fair Share, a Columbia-based nonprofit organization. "You can't access your job or health care and, therefore, you fall behind on other bills, and it makes life almost impossible."

Car title lending was introduced in the early 1990s as an alternative to payday loans and has been growing rapidly, according to a study by the Center for Responsible Spending and the Consumer Federation of America. The recently released study indicates that, while some states have started to pass laws protecting borrowers from predatory lending practices by placing restrictions on repossessions and capping interest rates, many states have no title lending laws.

Only 14 states have pending title lending legislation. The lack of laws and restrictions surrounding title loans has made it difficult to count just how much money these loan companies make and how many people are caught in that circle of debt.

It's estimated that there are currently more than 15,000 title loan shops in the United States.

In some states, such as South Carolina, lenders can only flip a title loan six times. In other states, there are no laws that require the lender to reimburse the borrower for a car sold for more than what is owed on the original loan.

"We feel that if states allow this type of lending then they need to regulate it much better," says Amy Quester, policy and litigation counsel for the Center for Responsible Lending. "There is a lot of variety from state to state regarding title lending. However, I think title lenders have been operating below the radar and lobbying for special treatment and exploited loopholes."

Ruoff agrees that title lenders have figured out how to be effective in the legislative arena. "They hire good lobbyists and make considerable campaign contributions."

The credit industry has a very strong lobby everywhere, and most consumer advocates say it will be tough to get something accomplished unless more politicians are involved.

With no laws in place, you will find uncapped interest rates, some as high as 1200 percent. Lynn Drysdale, consumer law attorney for Jacksonville Area Legal Aid Inc., says title lending was the biggest daily legal problem facing her clients in the early 1990s when both title and payday businesses were popping up outside of local military bases.