Wednesday, April 16, 2014
Inquirer Daily News

What Is a Credit Report?

Personal Credit Reports
Sometimes called a credit file or a credit history, the personal credit report details a consumer's financial behavior and identification information in a consumer-friendly format that makes it easy for you to understand what a lender would be seeing if they reviewed your credit history. Information on the report is obtained from your creditors, public records and other reliable sources, which report it to Experian through an automated process.

Credit reporting agencies store the information and report it to others who have a permissible purpose under the law. A credit reporting agency's role in an investigation process is to investigate and verify the consumer's information to determine the accuracy and completeness of any item or items by contacting the creditor and informing them of all relevant information regarding the consumer's request for an investigation. If the issue is not resolved, then the credit reporting agency will offer the option of including a consumer statement with the report. The Federal Trade Commission does not require that the credit reporting agency obtain documentation such as the actual signed sales slips, signature cards, contracts, etc.; nor does it require that credit reporting agencies act as mediators or negotiators in account disputes.

Experian Credit Report Sections
Some of the sections you might find on your personal credit report from Experian are:

  • Personal data - Includes information associated with your records that has been reported to us by you, your creditors and other sources. It may include name variations, your driver's license number, Social Security number variations, your date of birth, your spouse's name, your employer, your telephone numbers and information about your residences. As part of our fraud prevention program, a notice with additional information may appear in this section.
  • Credit information - This section lists most of a consumer's credit accounts, the date when those accounts were opened, payment history, debt owed and any co-signers.
  • Public record information - A compilation of public information gleaned from courthouses, this section includes bankruptcies, monetary judgments stemming from lost court cases, federal and state tax liens, and overdue child support payments.
  • Requests for your credit history - This section contains a list of those individuals and organizations that have recently sought information from the credit report because you applied with them or under permissible purpose of the law. These might include lenders, insurers, employers and stores that want to increase the credit lines of customers who meet certain criteria. Certain inquiries generate pre-approved credit card offers.
  • Consumer statement (optional) - You can contribute a statement addressing an issue on your report. Experian will also help you write a consumer statement of 100 words or less. See personal statement. We suggest that you check your personal credit report often in order to know and understand what is being reported about you. This is one step to maintaining your financial health. Get your online personal credit report.
What is a Credit Score?
A credit score is a number that reflects your credit risk level, typically with a higher number indicating lower risk. It is generated through statistical models using elements from your credit report; however, your score is not physically stored as part of your credit history on the credit file. Rather, it is typically generated at the time a lender requests your credit report, and is then included as part of the report. Your credit score is a fluid number, and it changes as the elements in your credit report change. For example, payment updates or a new account could cause your score to fluctuate. There are many different credit scores used in the financial service industry. Your score may be different from lender to lender (or from car loan to mortgage loan), depending on the type of credit scoring model that was used.

Why are Credit Scores Used?
Before credit scores, lenders physically looked over each applicant's credit report to determine whether to grant credit. A lender might deny credit based on a subjective judgment that a consumer already held too much debt, or had too many recent late payments. Not only was this time consuming, but human judgment was prone to mistakes and bias. Lenders used personal opinion to make a decision about an applicant that may have had little bearing on the applicant's ability to repay debt. Credit scores help lenders assess risk more fairly because they are consistent and objective. Consumers also benefit from this method. No matter who you are as a person, your credit score only reflects your likelihood to repay debt responsibly, based on your past credit history and current credit status.

Who Uses Credit Scores?
Banks, credit card companies, auto dealers, retail stores, and most other lenders use scores to quickly summarize a consumer's credit history, saving the need to manually review an applicant's credit report and provide a better, faster risk decision. Although many additional factors are used in determining risk, such as an applicant's income vs. the size of the loan, a credit score is a leading indicator of one's basic creditworthiness.

What Information Impacts My Credit Score?
The information that impacts a credit score varies depending on the score being used. Generally, credit scores are affected by elements in your credit report, such as:

  • Number and severity of late payments
  • Type, number and age of accounts
  • Total debt
  • Recent inquiries
  • Credit bureau-based scores, like those generated by Experian, cannot use demographics prohibited under the Equal Credit Opportunity Act, such as race, color, religion, national origin, gender, age, marital status, receipt of public assistance or exercise of rights under Consumer Credit Protection Act. Scores used by individual lenders may use such elements as income, occupation, and type of residence in determining their own custom credit score.

Have You Seen Your Credit Score Lately?
September 1st marked the one-year anniversary that all Americans were able to take advantage of receiving a free credit report from each of the three nationwide consumer credit reporting companies. The Fair and Accurate Credit Transactions Act of 2003 (FACT Act) was phased in regionally last year and enables consumers to obtain a free copy of their credit report once a year from each of the three nationwide consumer credit reporting companies: Equifax, Experian and TransUnion.

AWARE, a nonprofit group dedicated to educating consumers about auto financing, advises consumers looking to buy their next car or truck to first obtain an updated copy of their credit report by visiting https://www.annualcreditreport.com. Inaccurate or missing information in your credit report could affect the financing you're offered on a new car or truck. Consumers should consider the following when requesting and reviewing their credit report:

  1. Spread out your requests: You have access to three credit reports a year -- one from each of the three consumer credit reporting companies. Don't request all three reports at the same time. Space out your requests over the span of a year so you can see ongoing changes to your credit record and check if there are persistent problems.
  2. Understand what's in your credit report: It's important to know and understand the type of information you'll see in your credit report. This includes employment information; inquiries into your credit history over the last year; your payment history including different creditors and if you pay your bills on time; and information about you in the public record, such as bankruptcies or foreclosures.
  3. Review your credit history: Getting a peek at your credit history lets you see what vehicle financers see when reviewing your creditworthiness for financing a new vehicle. Knowing your credit history and where you stand will help you understand the financing rates you're offered and can help you negotiate financing more effectively.
  4. Correct errors before you start shopping for a new car or truck: You can correct any errors before you request financing for a new car or truck to make sure your credit is judged accurately. Report any inaccuracies you find in your credit report to the credit reporting company in writing and include copies of documents that support your position.
Getting an up to date credit report can help consumers evaluate the competitive deals they're offered and negotiate when shopping for vehicle financing. Consumers should also consider some other important tips when navigating the auto financing process:

  1. Get Educated: Make sure you are familiar with common terms you're likely to hear or read in the course of getting your credit report, making corrections, and purchasing or financing a vehicle. Many of these terms, including down payment, fixed and variable-rate financing, and on and off-site financing can be found at www.autofinancing101.org/resources/glossary.asp.
  2. Develop a budget: If you don't already have a budget, now is the time to create one. Don't forget to factor in vehicle related costs outside of a new car payment, such as insurance, maintenance and gas costs. Also, be sure to budget for other financial goals you may have, such as buying a house, ongoing education, or funding your retirement savings. Drawing up a comprehensive budget will help you determine how much car you can actually afford.
  3. Shop around for financing: There are many sources of financing for automobile purchases, such as banks, credit unions, financing companies, savings banks, loans from stock brokerage firms, and home equity loans. This has created a highly competitive marketplace and lower rates for all consumers. Virtually all 22,000 automobile dealerships offer the convenience of one-stop shopping through on-site financing offerings that assist consumers in securing financing. Most dealerships work with five to 10 different banks or finance companies so that they can offer competitive deals to their customers.
  4. Negotiate: Vehicle financers use a number of factors to determine the finance rate they will offer you. But remember that you may be able to negotiate the finance rate you are offered just as you would the price of the vehicle.
  5. Understand the difference between buying and leasing a vehicle: "Keys to Vehicle Leasing," a publication of the Federal Reserve Board, provides useful information on this topic and can be downloaded from the Internet at www.federalreserve.gov/pubs/leasing .
  6. Make payments on time: Late or missed payments incur late fees and can even cause your vehicle to be repossessed. A bad payment record will also appear on your credit report, damaging your ability to get credit in the future.