Your credit report can have a serious impact on most aspects of personal finance: renting (or buying) a home, and arranging credit and loan agreements of virtually any kind. Your credit file contains summary information on most of your important financial affairs: it lists credit cards, car loans, home mortgages, all of the debts you’ve failed to pay on time in the past, and even all of the recent requests for information, or credit “checks,” received by that credit rating agency. There are two major advantages of getting your credit report: so that you know the same information about you that potential lenders are getting (and therefore what areas might need improvement), and so that you can identify and clear up any problems in the file, resulting either from genuine errors or, more seriously, from identity theft.
– About the Credit Report and the Credit Score –
The credit report consists of information submitted to credit bureaus by corporations whenever an individual applies for credit, or a loan: a credit card, a bank line of credit, a store credit card, and so on. A note is also placed on the file whenever a payment is submitted late, whenever someone defaults on a loan, and whenever they enter personal bankruptcy. The file also contains a list of recent accesses, or credit checks, associated with credit applications.
Today, three major agencies, called credit bureaus, maintain such information in the United States: Equifax, Experian, and TransUnion. Credit bureau coverage varies by country: in Canada, for instance, only Equifax and TransUnion are currently active. You can acquire a copy of your credit file from any of these agencies. In most cases, you have two options: request and receive a printed copy for free (but with some delay), or pay for and instantly receive an electronic copy. All Americans have the right to a free credit report from AnnualCreditReport.com, a joint site owned by the three credit bureaus, once per year.
The information in your credit report is then used by lenders to calculate a rating, or “credit score,” which reflects the likelihood that you will pay off the full loan. Credit ratings are a standard function of the debt-based economy: thus, corporations and governments also have credit ratings, though these are assessed by different bureaus, like Moody’s. Personal credit ratings in the U.S. are typically calculated according to a method devised by Fair Isaac and known as FICO. Scores range from 300 to 850, with those in the 700s equating to good credit. Even where a credit report file is shared for free, normally you must pay to have your FICO score calculated and shared.
– Forewarned is Forearmed –
The first advantage of getting your credit report is that you can have on hand all of the information that a bank or other corporation is going to have about you when you fill out an application. This is of particular importance when arranging a home mortgage or a residential lease. In both cases, the bank or landlord frequently checks your credit to determine whether you are likely to meet all of your financial obligations. This means they will receive a list of your current credit opportunities as well as any times in the past when you have failed to make your payments.
Unfortunately, if the information on the credit file is correct, there is really no easy way to remove it – so you will not necessarily be able to “trick” your creditors. (And you may not want to anyways, since under some circumstances that would constitute fraud.) Nevertheless, the only circumstance more awkward than letting your future creditor or landlord see a list of your personal financial information is letting them see it without having any idea what is actually on it. At the very least, if you are aware of some potential warning signs in your credit file, you can be proactive and explain why they’re there, what sort of trouble prevented you from paying the bills properly, and how you’ve taken action to prevent such a problem from occurring again in the future. At the very least, this may help reassure nervous landlords.
– Find Errors and Identity Theft –
The most common fear today when it comes to personal credit is identity theft – fraudsters gaining access to our credit card numbers and other important personal details and using them to run up enormous debts in our name. Identity theft is illegal and in most cases you will not be held legally responsible for the debts someone else has run up in your name. However, in order to avoid being held responsible, in this case you may need, essentially, to prove your innocence.
And, of course, even if you are not a victim of identity theft, there is a real chance of a simple error on your credit file. Whether the false information is there intentionally or accidentally, it can cause serious problems the next time an employer, landlord, or bank has a reason to check your credit report. Instead of finding out after the fact, be proactive and make sure the information in the file is correct and complete in advance!
The Federal Trade Commission (FTC) has a Web page explaining how Americans can take action to correct errors on their credit report. Even if the dispute is not resolved in your favour, the FTC states that you can demand – sometimes for a fee – that a note be added to your credit report indicating that a dispute was filed over negative information on the credit report.