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What is a credit report?
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Whenever you apply for any type of credit or
financing, a credit report is pulled from at
least one of the three major credit bureaus.
While there are hundreds of smaller credit
bureaus around the country, virtually every
credit bureau is affiliated with either
Experian, Trans Union, or Equifax.
These credit bureaus collect and maintain
information on the vast majority of
Americans, but they are not affiliated with
the government in any way. The credit
bureaus are for-profit corporations and they
sell your personal information for money.
The credit bureaus receive your personal
information through the same lenders who
grant you credit. They have agreements with
each of these credit grantors that require
the credit grantor to inform the credit
bureaus of everything that occurs in your
relationship with the credit grantor. If you
make a payment late, the negative credit
listing is quickly reported to at least one
of the three major credit bureaus and is
added to your credit history. Credit reports
are not just a record of how you are
currently managing your credit accounts.
Credit reports are histories of everything
you are doing with your credit now, and
everything you have done in the past.
The credit bureaus collect this information,
list it on your credit report, then sell it
to other credit grantors who wish to see
your credit history before they decide to
lend you money. The credit grantors who
review your credit are especially interested
in any negative credit. If you have shown
any tendency to pay late, or to disregard
your financial commitments in the past, then
the creditors' computers will typically
reject your application.
Just like when you were in grade school,
your credit report is your financial report
card to the world.
What kind of information appears on the
credit report?
Merchant Trade Lines
These include all regular credit lines such
as department store cards, auto loans,
mortgages, and credit cards. If there is any
history of late payment, or if the trade
line was included in bankruptcy, charged
off, or put into repossession, the listing
will be considered negative by all credit
grantors.
Collection Accounts
When an account is referred to collections
because of delinquency or because of a bad
check, this appears on the credit report as
a collection account. Collection accounts
can appear as paid or unpaid accounts. Any
type of collection account, whether paid or
not, is considered very negative by all
credit grantors.
Court Records
Court records include bankruptcies,
judgments, liens, divorce, satisfied
judgments, and satisfied liens. All court
records, including satisfactions, are
considered negative by all credit grantors.
Inquiries
Every time a potential credit grantor looks
at your credit file, a credit inquiry
appears on at least one of your credit
bureau reports. If the number of inquiries
is very few over the last two years, then
there may be no negative effect on your
credit worthiness. However, if there are
many recent inquiries showing on your credit
report, credit grantors may become nervous
and deny you credit.
Who looks at my credit report?
With the passing of each year, your credit
report is used more and more often as a yard
stick to measure your character. Prospective
creditors will always review at least one of
your credit reports before granting you
credit. Today it is increasingly common for
insurance companies to review your credit
before extending auto or health insurance.
Many employers now check credit before they
consider you for a position. If you rent,
you may have already been through a credit
check to determine your worthiness as a
renter.
How long will negative information stay on
my credit report?
The Fair Credit Reporting Act (FCRA)
requires that most negative credit items be
deleted from your credit bureau file in no
more than seven years, except for bankruptcy
which can be reported for up to ten years.
These are the time limits for reporting
negative credit. The creditor or the credit
bureau can choose to have the negative
credit information deleted whenever they
please. Inquiries may remain on the credit
report for up to two years.
Under the new Fair Credit Reporting Act, no
collection or charge off may remain on the
credit report for more than seven and one
half years from the first late payment that
initiated the collection or charge off
status.
How can I see my credit report?
Most credit grantors are not allowed by the
credit bureaus to show you your own credit
report. But you can purchase your credit
report from the credit bureau for a fee or
you may buy it on line through a variety of
services.
If you order your credit report from the
credit bureaus themselves, you may find that
you cannot read it because the information
is listed in an unfamiliar code. Trans Union
and Equifax credit reports are very
difficult to interpret and understand.
Experian credit reports, however, are
relatively easy for most people to read.
How much bad credit does it take for me to
be denied credit?
As you may have already experienced, even
one small late pay listing may result in
credit denials. It is a myth that a large
amount of positive credit can outweigh some
negative credit. Any negative credit
whatsoever can become a substantial credit
obstacle.
Different kinds of creditors respond
differently to bad credit. It is safe to say
that your bankruptcy will continue to make
it more difficult to get credit for seven
years after your last late payment assuming
you don't repair your credit.
Within two years after the last negative
listing, a consumer can usually acquire
"sub-A" financing for a home (assuming all
accounts are paid.) Within three years, the
consumer should be able to get normal, "A,"
mortgage rates even without Credit Repair
(that assumes that the person has been
current on bills all the while.)
Auto financing is a little less forgiving.
You may find yourself paying higher or
slightly higher interest rates on cars until
seven years after the negative listings
(without Credit Repair), when the listings
are deleted from the credit report. You can
get auto financing with bad credit in most
areas, but the rates are going to be
astronomical. Yet, time heals all wounds,
and you should be doing better within three
years of the negative listing.
Credit cards and banks are the least
forgiving of all. Many standard rate credit
cards will not even consider an application
from a person with a any negative credit on
their credit report. In these days, though,
there are credit cards that cater to every
credit situation; even someone who
discharged their bankruptcy the day before
applying. Most of these cards charge very
high interest or unusual up front fees or
security deposits. It is common for one of
these cards to charge you an "application"
fee equal to the limit on the card. After
the bankruptcy ages, prospects become
better, but they will remain sub-standard
until the negative listens fall off the
credit report. With that said, it shouldnąt
be forgotten that bad credit can usually be
repaired (after a significant amount of
effort and follow-through.) Even bankruptcy
can be repaired after enough effort and time
are dedicated to the task.
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