What is credit?
Credit put simple is your "financial trustworthiness". Credit is defined as confidence in a borrower's ability and intention to repay. People use the credit they have with financial institutions, businesses, and individuals to obtain loans. They use the loans to buy goods and services. The credit a person has typically determines how much they will be permitted to borrow, for what purpose, for how long, and at what interest rates. The level of "confidence" lenders have in potential borrowers depends on many factors. A person's income is an indicator of a person's ability to repay, particularly when compared to the amount of debt they already have. The amount of borrowing a person has already done and how well they handled repayment is an indicator of their intention and ability to repay.
- Why use credit? The reasons people borrow are varied and personal. Loans allow you to obtain goods and services today, such as homes and automobiles, and spread the cost over time. This makes these purchases more affordable than they might otherwise be. Most Americans could not afford homes or cars without the ability to borrow. Many people who have built up their savings use loans instead because they consider rebuilding their savings more difficult than repaying the loan. Many people who already have the money to pay for items use credit cards because it is more convenient and safer than using cash or checks. They just pay the full balance when the bill comes.
- What does responsible use of credit mean? Responsible use of credit revolves around the family budget and how much you can afford to devote to loan payments. As a general guideline, borrowing may be justified for automobiles, homes, recreational vehicles, education, home improvements, and other purchases that have value lasting beyond the time it takes to pay them off. Borrowing to pay for daily expenses such as groceries, gasoline, and utilities is often a recipe for trouble. These bills will often accumulate faster than you can pay them off. Responsible use of credit also refers to living within your means. You should limit the size of the home you buy or the price of the car you drive by the size of the monthly payment you can comfortably afford.
What is a credit report and what's on it?
A consumer credit report is a factual record of an individual's credit payment history. It is provided for a purpose permitted by law, primarily to credit grantors. Its main purpose is to help a lender quickly and objectively decide whether to grant you credit. Examples of credit include car loans, credit cards and home mortgages.
What does a typical credit report include?
What does a typical credit report include?
- Your name, current and previous addresses, phone numbers, Social Security Number, date of birth, and current and previous employers. This information comes from your credit applications, so its accuracy depends on your filling out the forms clearly, completely, and consistently each time you apply for credit.
- Specific information about each account such as the date opened, credit limit or loan amount, balance, monthly payment, and payment pattern during the past several years. This information comes from companies that do business with you.
- Federal district bankruptcy records, state and county court record of tax liens and monetary judgments, and, in some states, overdue child support. This information comes from public records.
- The names of those who have obtained a copy of your credit report. This information comes from the credit reporting agency.
How do credit-reporting agencies compile credit reports?
Every credit report is custom made. When a credit grantor requests a credit report on a specific consumer, the credit-reporting agency collects information about the consumer from various portions of its computerized database. For example, when John Q. Consumer goes for a car loan, the loan officer may request a credit report by giving the credit reporting agency specific information from John's credit application; full name, full address, Social Security number, and date of birth. The credit reporting agency uses information to search its database for all relevant data reported about John, credit and identification information from lenders, public record data from the court systems, and the credit agency's own records of who has received a recent copy of John's credit report. In a very short period of time, the credit-reporting agency compiles the information into a single report and transmits the report back. At that point, the credit reporting agency's job is done.
What do lenders do with the credit report?
Credit reporting agencies provide data to credit grantors at their request. The role of the lender is to make lending decisions. In making their lending decisions, credit grantors often look at factors such as how long you've lived at the same address, the amount of your unused credit, and your past credit history. Different lenders may use different pieces of information to make their decisions or make different decisions based on exactly the same information. In fact, the same lender may change its decision criteria over time. Only the individual lender knows the reasons for granting or denying credit. However, there are laws that protect consumers from discriminatory lending practices.
How long does negative information stay on a credit report?
Federal law specifies how long negative information may remain on your credit report. To prevent past errors from haunting you forever, most negative information must be erased after seven years. This includes late payments, accounts that the credit grantor turned over to a collection agency and judgments filed against you in court – even if you later pay the account in full. The length of time a bankruptcy remains on your credit report depends upon which type you file.
Credit reporting agencies use the date of original delinquency or, in the case of public records, the date of filing to determine when negative information is deleted. Positive information remains on your credit report indefinitely.
- Chapter 7 – (10 years) – A liquidation where assets (if any) are sold to settle debt to creditors.
- Chapter 11 – (10 years) – A reorganization (typically for corporations and partnerships) to address the repayment needed.
- Chapter 12 – (7 years) – A simplified reorganization for farmers where the debtor retains their property and repays debt from future profits.
- Chapter 13 – (7 years) – A repayment plan for individuals with regular income and debt under a certain amount.
Credit reporting agencies use the date of original delinquency or, in the case of public records, the date of filing to determine when negative information is deleted. Positive information remains on your credit report indefinitely.
Is my credit report protected?
Enacted by the U.S. Congress in 1970 and amended in 1996, the Fair Credit Reporting Act (FCRA) protects your rights as a credit-active consumer by limiting access to your credit report. You may request a copy, but no one else may legally review your report without permissible purpose, like:
Anyone who knowingly and willfully obtains a credit report under false pretenses may be fined and imprisoned. The FCRA also includes these consumer protections:
- in connection with your application for a government license
- to manage the risk of potential or current credit, investment or insurance accounts
- for employment purposes such as hiring or promotion
- in response to a court order or federal grand jury subpoena
- in accordance with your written instructions
- in connection with an FBI investigation of issues such as counterintelligence
Anyone who knowingly and willfully obtains a credit report under false pretenses may be fined and imprisoned. The FCRA also includes these consumer protections:
- To prevent past troubles from haunting you forever, most negative information must be erased after seven years. Bankruptcies remain no more than 10 years. Credit reporting agencies use the date of original delinquency or, in the case of public records, the date of filing to determine when negative information is deleted.
- You may obtain a free copy of your credit report if you ask for it within 60 days of being denied credit, insurance, employment or rental housing based on information in the report. Or, you may get a copy if you suffer an "adverse action" such as decreases in your credit limit or increased interest rate.
- When credit is denied based on information in a credit report, the credit grantor must tell you the name and address of the credit bureau that supplied the report and, upon written request, the reason for the denial.
- If you dispute the accuracy of information in your credit report, the credit-reporting agency must investigate within 30 days.
- Your report must reveal who has received a copy within the past two years for employment purposes or within the past year for any other purpose.
How can I create a positive credit history?
Pay your bills, on time, regardless. Most lenders look at the most recent information on a report. So, if you've paid your accounts on time for the last two to three years, the lender may ignore a series of late payments from five years ago.
Review your credit report 60 to 90 days before making a major purchase (such as a home or car.) For $8.00 BALANCE, will get you a copy of your credit report.
Review your credit report 60 to 90 days before making a major purchase (such as a home or car.) For $8.00 BALANCE, will get you a copy of your credit report.
How do I obtain a copy of my credit reports and scores?
Experian at 888.397.3742
Trans Union at 800.916.8800
Equifax at 800.685.1111
To obtain a copy of your credit report:
or get all three reports and scores from one site:
or mailing address:
TransUnion
P.O. Box 6790
Fullerton, CA 92834
Experian
P.O. Box 9530
Allen, TX 75013
Equifax
P.O. Box 740241
Atlanta, GA 30374
Trans Union at 800.916.8800
Equifax at 800.685.1111
To obtain a copy of your credit report:
- Equifax – www.equifax.com
- Experian – www.experian.com
- TransUnion – www.transunion.com
or get all three reports and scores from one site:
or mailing address:
TransUnion
P.O. Box 6790
Fullerton, CA 92834
Experian
P.O. Box 9530
Allen, TX 75013
Equifax
P.O. Box 740241
Atlanta, GA 30374
Why do I need all three credit reports from Equifax, Experian and Transunion?
The three national credit bureaus do not communicate with each other, so you actually have three credit histories. It is up to you to make sure that your credit histories are accurate, so you should get all three of your credit reports. It is essential to know what each credit reporting agency is reporting on your financial history.
I have all 3 credit reports; what comes next?
Gather all of your monthly statements from all of your bills and make an appointment to go over your financial arrears. We will figure out what is the next step to your financial freedom.