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All about Credit Reports

The term “Credit Report” is probably the most discussed when talking of financing, loans, credit cards etc., Everyone is concerned about his/her credit report as this document is the one that will determine whether one can get a loan or a credit card and if so, at what terms and conditions.

A credit report is a factual record of one’s payment history. Credit Bureaus generate these credit reports and provide them to financial institutions and lenders based on requests. When one applies for a loan the lender, invariably a financial institution like a bank, request for a credit report of the individual applying for a loan. The decision whether to grant a loan or not is determined by the bank or the lender based on the information contained in the credit report. The credit bureaus maintain a database of financial transactions of people and the credit bureaus maintain a credit file for each individual. Majority of people have at lease one credit card, have loans taken for buying a home or taken for completing education in a college or a university or loans taken to buy durable goods like furniture, computers and the like. The credit bureaus obtain information on loans advanced directly from the bank or lender who provided such loans. Information is also obtained from legal perspective, such as court decisions. The three major credit bureaus that operate in USA are Experian, Equifax and TransUnion. Any bank or a lender usually gets a report from any of these 3 bureaus. There are many small bureaus but generally a credit report is requested only from any of the three given above.

There are many types of credit reports that are available.

• Consumer Credit Reports – there are the ones which are required for any lending agency to decide whether to grant loans to individuals or not.

• Property Manager Credit Reports – these are basically similar to consumer credit reports.

• Business Credit Reports – these determine whether any business is creditworthy or not. These reports contain information about a company, the primary function of the company, background information like number of years in business, number of employees, revenues and the like.

• Employer Credit Reports – these are requested by employers before a job offer is given. Not all companies follow this route. These reports include information on the current and any previous employment, education details, criminal records, address verification etc.,

·         Mortgage Broker Credit Reports – These reports contain the credit information of individuals nationwide merged from at least 2 bureaus. These reports are almost the same as consumer credit reports.

A credit bureau collects information about individuals but these credit bureaus are not affiliated with the government in any way. As an individual one has some protection rights under the Fair Credit Reporting Act (FCRA). Essentially the credit bureaus sell information about individuals for money and this business is more than a billion dollar industry! A credit report contains information on any or all of the following:

• Names of agencies that advanced credit.

• Maximum credit amount given to the individual

• Total credit amount from all creditors.

• Balance remaining with each creditor and total with all creditors

• Past due remaining balances

• Record of payment history

• Any bankruptcy information

• Legal credit decisions those are adverse.

• Foreclosures

• Tax Liens

The information that is not usually found in credit reports are – the sex, race, physical features, marital status, personal medical records etc., Debts that are more than 7 years old are not included in the reports as also any bankruptcy records that are more than 10 years old. The 3 major credit bureaus operate independently in the sense that the sources of information about individuals for these bureaus may not be the same. Some financial institutions and agencies do not forward information to all the 3 bureaus. Thus one can find information found in say, Experian Credit Report, may not be found in the TransUnion Credit Report. This is the reason why many opt for a 3-in-1 credit report which is nothing but a report that has information from all the three major credit bureaus.

A question that is commonly asked is – why should I get my credit report and verify when I do not have any issues with my finances and do not have any problem with the bank or any lender? Thanks to unscrupulous nature of some thieves, there are many credit frauds reported and individual information has been stolen misused for raising loans. The only reason why one should verify their credit report at least once a year is to check whether there has been any identify theft and whether any fraud has taken place. If someone finds any identity theft at the time of applying for a loan, there he or she is serious trouble. First the information needs to be corrected in the credit report before any lending agency comes forward to advance the loan.

The main advantages of possessing the latest credit report are many depending on situations. These are explained below:

• When buying a home or a car, with a clean credit report, one can bargain for better interest rates and favorable terms for the loan. It would be advisable to get a credit report well in advance of applying for a loan, more important for a mortgage loan or a refinance or a home equity loan and verify the correctness of information contained there in. Any errors can be fixed in time so as to be in time for the loan application.

• If anyone is renting a home and wish to move to another home or when one is relocating to another place, it is better to get hold of a credit report in advance, as the prospective renter may demand for a credit report. Else delay will be there for moving and that may cause inconvenience.

• If in the unfortunate situation of a divorce, it is worthwhile to verify the credit report in advance, as there could have been money transactions that one may not have known.

• In the unforeseen event of a bankruptcy, it makes sense to capture all credit accounts. Any missing account will create problems for the future.

• If one needs to apply for a new credit card or applying for a credit line, checking the credit report well in advance helps to detect any misinformation or identify theft.

• For those who are self employed, checking credit report helps in opening new merchant accounts and for any loans from the banks.

• For financial planning purposes, getting hold of the latest credit report helps in evaluating the present scenario against any future horizon.

As mentioned above FCRA states guidelines as to who can have access to one’s credit reports. Unless there is a compelling purpose, a business or a lending agency may not have access to credit reports of individuals. There should be a “legitimate business need” and a “permissible purpose” that requires review of credit history of individuals.  The businesses that can have access to credit reports are lenders or credit grantors, collection agencies, insurance companies and employers. Even family members or close friends cannot access one’s reports without written permission.

If anyone has a problem or a dispute with the credit report he or she can call the specific credit bureau that issued the report and mail a letter with the following information:

• Full name including first, middle, last and any suffixes you may have;

• Current mailing address;

• Social security number;

• Date of birth;

• Name and account number that is in question

• Reason for requesting an investigation;

• Signature.

The addresses of the 3 major credit bureaus are:

Equifax Information Services
P.O. Box 740256
Atlanta, GA 30374

TransUnion Consumer Relations
P.O. Box 34012
Fullerton, CA 92834

Experian Consumer Assistance Center
P.O. Box 2002
Allen, TX 75013