If someone wanted to borrow 10 bucks from you, you might just hand it over. But what if he or she wanted to borrow substantially more? You'd be more cautious. You'd think: How well do I know this person? How much money is involved? Has he borrowed money from me before? Did he pay it back on time? What will I do if he doesn't pay it back?
Lending institutions ask much the same questions when consumers ask to borrow their money. And they likely get the answers from reviewing a potential borrower's consumer credit report. If you are one of the 180 million people in the United States with a charge account, car loan, student loan or home mortgage, you have a consumer credit report.And while credit reports are an important and useful business tool, consumers sometimes wonder about all the information that is being kept and how it is going to be used.
TRW Information Systems and Services, one of the country's major credit reporting companies, offers answers to some frequently asked consumer questions about credit reports:
What is a credit report?
A credit report is a record that helps a credit grantor (retailer, bankcard issuer, bank, finance company, etc.) decide whether to give you credit. It includes:
- Identifying information such as your name, address, Social Security number and year of birth;
- Details about your loans, lines of credit and credit card accounts such as account balances, credit limits, loan amounts and your payment pattern during the past two years;
- Public record information from state and county courts (limited to bankruptcies, tax liens and monetary judgments); and
- Inquiries. When your credit history is reviewed for any reason, your report will contain a record of that access for up to two years.
How are credit reports compiled?
Tens of thousands of credit grantors send information to credit reporting services each month about how customers use and pay their accounts. Information is also collected from state and county courts. All this information is put into a database.
What else is in a credit report?
Many people believe that a credit report shows only negative information. Actually, most of the data on file is positive, indicating that the majority of people pay their bills on time.
Almost as important as what is in your credit report is what isn't. Your credit report does not contain any information about race, religious preference, medical history, personal lifestyle, personal background, political preference or criminal record.
Where is my credit report kept?
Many people think there is a separate file out there with their name on it. But the truth is that a credit report on a specific consumer does not really exist until a credit grantor requests it. It's kind of like beef stroganoff - you may have all the ingredients in your kitchen, but you can't have dinner until you combine them in the appropriate manner. Similarly, all the "ingredients" of a consumer credit report are stored in separate databases and compiled upon request.
How are credit granting decisions made?
When deciding whether to give you the credit or money you seek, potential lenders take into account the three C's - your:
- Character: your personal and financial stability as measured by how long you've lived at the same address and worked for the same employer.
- Capacity: the amount of debt you can realistically pay given your income, current credit debt and other expenses and how much unused credit you currently could access; and
- Credit: the relationships you have with other lenders as measured by how well you've handled past credit obligations.
Some of this information comes from your credit application, some from a credit report.
What are mortgage reports?
Mortgage reports are special credit reports that lenders order prior to deciding whether to give you a home loan. Each report is a compilation of credit reports from two or three credit bureaus. The mortgage credit reporting company purchases the reports from companies, combines them and manually verifies specific details such as employment, credit account balances and public record information.
Do credit bureaus make lending decisions?
Only credit grantors make lending decisions. A bureau's job is credit reporting. It collects, stores and reports the relevant identifying and credit information of credit-active Americans. Using this information, credit grantors alone decide what standards you must meet to be granted credit.
How do risk scores help lenders make decisions?
A risk score is a statistical summary of the information described in words and figures in your credit report. It is used to help a lender objectively and accurately review your report and predict your future payment pattern.
Because lenders can view the same score differently, it's impossible to say whether a particular score is "good" or "bad." The credit granting decision hinges on a lender's individual marketing plan, business niche, tolerance for risk and many other factors.
Since a risk score tells you nothing about your ability to obtain credit, it is not included on your credit report.
Can "credit repair" clinics fix a bad credit rating?
Some consumers have paid so-called credit clinics hundreds and even thousands of dollars to "fix" their credit report, but only time can heal bad credit. Federal law mandates the time periods that accurate negative information can remain on a credit report.
Any consumer can dispute inaccurate information at no charge. Most credit reports contain easy-to-follow instructions for disputing inaccurate information.
If you need help repaying creditors, managing debt or setting up a personal budget, contact the nonprofit Consumer Credit Counseling Services. CCCS is a reputable, nonprofit organization. For the office nearest you, call 1-800-388-2227.
How can I get a copy of my credit report?
It's smart to periodically review your credit report to be sure it's complete and accurate. This is especially true if you're planning a major purchase such as a house or car.
Federal law requires credit reporting agencies to provide you with a free copy of your report if you request it within 30 days of being denied credit.
TRW also offers consumers one complimentary copy of their credit report each calendar year. For instructions on how to order, call 1-800-682-7654.