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. |