Thursday, November 10, 2005
Credit basics
Credit reports and agencies remain one of life's largest mysteries to most of the population. Hopefully, I can clear up a little bit of the fog that surrounds them here.
What is a credit report? Credit reports are generated by credit reporting agencies. These agencies collect information about a person regarding debts, public records, and credit inquiries. There are three main agencies (Transunion, Equifax, and Experian), which I will discuss at greater length in a minute.
Credit reports contain valuable information for anyone looking to determine how credit worthy or employable a person is. The basic personal information listed is as follows; name, social security number, most recent addresses, and birthdate. The debts are broken out into a separate section and contain the name of the creditor, the account number, the highest limit available, the current balance, the current monthly payment, the term, and most importantly, payment history. The "term" refers to the agreed upon length of time the debt is to be repaid. Credit card terms are referred to as revolving because they have no set timeframe for repayment. The public records section of a credit report lists things such as judgments, property liens, and bankruptcies. The final section of a credit report contains the recent inquiries received by the credit agencies.
What is a credit score? Credit scores are a basic measurement of a person's creditworthiness. They weren't always a part of credit reports. In the past, people were forced to read through an entire report and subjectively decide how credit worthy a person was. The change to the credit score system has made the process of obtaining financing and employment much more efficient (that is not to say it doesn't have it's own flaws).
Credit scores were developed by a company called Fair Isaac Company (FICO) and FICO scores remain the most common measure of a person's ability to repay debt. FICO scores range from 350-850, with the average score being somewhere in the 680 range. Credit scores under 620 are most likely relegated the "subprime" sector (see my June 13th post for more on that). Generally, if you have a score over 780, you are in the highest possible credit bracket as far as lenders are concerned. In the mortgage industry (possibly in others too, though I don't have the experience there), the middle credit score of the three major credit reporting agencies is considered the representative score. In other words, the high and low scores are thrown out and the middle is used to determine creditworthiness. This is to prevent a mistake or flaw in one agency's reporting to irreparably damage a person's ability to obtain credit.
"No Cost" credit reports You have seen them listed everywhere and it is one of the most prevalent types of email you don't want to receive. So what's the catch? If you order your credit report on any website that promises to pull your credit and give you a score and you don't have to pay for it, they will almost always sell your information to solicitors. Prepare yourself for the barrage. As far as I am aware (disclaimer), if you go directly to the three credit bureaus and pay them for your report, your info will not be sold to third parties.
Who are the three credit reporting agencies and how can I get in touch with them? As discussed above, the three major credit reporting agencies are Transunion, Equifax, and Experian. You will notice that there are links to each agency's website. If you would like to get a copy of your report to check for accuracy, these are the sources I would recommend. The $30 you spend to get the info straight from the source may save you hours of headaches from solicitors.
Those are the basics of credit reports. I will write another article in the future discussing late payments, inquiries, "good" debt, and other in depth issues concerning credit.
What is a credit report? Credit reports are generated by credit reporting agencies. These agencies collect information about a person regarding debts, public records, and credit inquiries. There are three main agencies (Transunion, Equifax, and Experian), which I will discuss at greater length in a minute.
Credit reports contain valuable information for anyone looking to determine how credit worthy or employable a person is. The basic personal information listed is as follows; name, social security number, most recent addresses, and birthdate. The debts are broken out into a separate section and contain the name of the creditor, the account number, the highest limit available, the current balance, the current monthly payment, the term, and most importantly, payment history. The "term" refers to the agreed upon length of time the debt is to be repaid. Credit card terms are referred to as revolving because they have no set timeframe for repayment. The public records section of a credit report lists things such as judgments, property liens, and bankruptcies. The final section of a credit report contains the recent inquiries received by the credit agencies.
What is a credit score? Credit scores are a basic measurement of a person's creditworthiness. They weren't always a part of credit reports. In the past, people were forced to read through an entire report and subjectively decide how credit worthy a person was. The change to the credit score system has made the process of obtaining financing and employment much more efficient (that is not to say it doesn't have it's own flaws).
Credit scores were developed by a company called Fair Isaac Company (FICO) and FICO scores remain the most common measure of a person's ability to repay debt. FICO scores range from 350-850, with the average score being somewhere in the 680 range. Credit scores under 620 are most likely relegated the "subprime" sector (see my June 13th post for more on that). Generally, if you have a score over 780, you are in the highest possible credit bracket as far as lenders are concerned. In the mortgage industry (possibly in others too, though I don't have the experience there), the middle credit score of the three major credit reporting agencies is considered the representative score. In other words, the high and low scores are thrown out and the middle is used to determine creditworthiness. This is to prevent a mistake or flaw in one agency's reporting to irreparably damage a person's ability to obtain credit.
"No Cost" credit reports You have seen them listed everywhere and it is one of the most prevalent types of email you don't want to receive. So what's the catch? If you order your credit report on any website that promises to pull your credit and give you a score and you don't have to pay for it, they will almost always sell your information to solicitors. Prepare yourself for the barrage. As far as I am aware (disclaimer), if you go directly to the three credit bureaus and pay them for your report, your info will not be sold to third parties.
Who are the three credit reporting agencies and how can I get in touch with them? As discussed above, the three major credit reporting agencies are Transunion, Equifax, and Experian. You will notice that there are links to each agency's website. If you would like to get a copy of your report to check for accuracy, these are the sources I would recommend. The $30 you spend to get the info straight from the source may save you hours of headaches from solicitors.
Those are the basics of credit reports. I will write another article in the future discussing late payments, inquiries, "good" debt, and other in depth issues concerning credit.
