What Are Consumer Credit Reports

2019/02/25

Although most people know about a consumer credit rating system, not many of them don’t know what consumer credit reports are. By looking at the consumer credit report, one can tell about your financial behavior, lifestyle and even your money-trustworthiness.

Consumer credit reports track your financial behavior to ascertain your credit worthiness. Almost every person in the United States is tracked this way. The details of your financial behavior go into credit reports – even if you don’t know anything about it.

They calculate your credit score based on various factors including your employment, monthly income, criminal background, etc. The score, known as FICO score, developed by Fair Isaac & Co, tells the likelihood of your repaying a loan. The score ranges from 300 to 850. The score 300 is ascribed to persons with the highest risk of defaulting and 850 for lowest risk. If your score falls below 650 or 600, you may qualify for a loan, but with higher interest than those in the 700-800 range.

Although your payment or non-payment of your bills are the primary determining factors of your credit score, your credit report has more details. An Equifax report has seven parts.

The first part has your personal details like current and previous addresses, employment details (current and past) and social security number. TIP: Prevent identity theft. Don’t throw away any documents or bills that contains these details. If you discard any such document, make sure you destroy it.

The second part is an overview of your credit history. It has information like current and past loans, types of credit used, and the number of hard enquiries on your credit report.

The third part has details of your credit history. It has details like account numbers, date of opening of accounts, balance, and other necessary details of every credit account you have. This section also has details like overdue payments and defaults on your existing accounts. If you think information furnished here is inaccurate, you can challenge it. The reporting agency is legally obliged to respond to your challenge within 30 days. You cannot challenge negative information if it is accurate and timely. As you can see, this is the most crucial part of your credit report, especially when it comes to getting new credit.

The fourth part has details of hard inquiries into your credit report. Hard inquiries are inquiries made into your report by creditors when you apply for a new credit card or a loan. The total number of enquiries made in the past 12 months will be reflected here. It doesn’t show ‘soft’ inquiries. It happens when you request your own credit report or when a creditor checks your report to offer you a bigger credit. The soft enquiries don’t show up in your credit report. They won’t affect your credit score.

The fifth part has details of delinquent accounts and any account turned over to collection. The sixth section contains details of wage garnishments or judgments against you in a court procedure. Both of these are negative information. You really can’t remove any such information from your credit report. The only way is to prevent such information from getting into your credit report. The only way is to avoid any of your accounts going into collection. Deal with the creditors directly before they consider collection, wage garnishments or court procedures.

The last section contains guidelines to challenging information contained in your credit report. Although you can challenge inaccurate information, you cannot successfully challenge negative information that is accurate and timely. You have probably seen advertisements promising you to remove any negative information from your credit report.

Usually, reports of judgments would stay in your report for seven years. Report of bankruptcy will stay for ten years. The only method is to prevent negative information from getting into your report. Make timely payments. Find a solution before the creditors start a legal procedure against you.

What are consumer credit reports for? As you can see, a credit report has all the essential details a creditor will be interested. The different parts of your credit report are factored in while calculating your credit score.

The Different Factors Determining Your Credit Score Are:

Payment history
Credit utilization rate
Variety in credit used
Credit inquiries (hard queries)
Longevity of credit history

The exact weightage of these factors are not extensively published. Payment history and credit utilization rate together has highest weightage in your credit score. Every other factor as reflected in your credit report has some weightage.

If you don’t have a credit card or a loan or any kind, you will not get a good score, even if you have good financial conditions. If you pay all your bills on time, you will have a good credit score, even if you don’t have a great income or other resources.

If you utilize most of the credit available to you, it will reduce your credit score. If the creditors close your accounts because of your non-payment, it will stay in your report for many years and drag your credit score down. When a credit increases the credit limit available to you, it increases your credit score.

Insurance companies check your credit report before fixing the premiums. If your report shows you have a criminal background, the premiums will be very high. Utility companies will check your credit score to ascertain whether or not to demand a security deposit from you. If you have a good credit score, they require very little or no security deposit at all.

In short, your credit report has enough details to identify you as a potential customer to creditors. It also has details to ascertain your credit worthiness, the likelihood of you repaying the loans in time. Although the factors are the same for all three major credit reporting agencies (viz. Experian, Equifax and TransUnion), their method of ascribing weightage and formula for calculating credit score are different.

You can see the consumer credit reports are primarily for the creditors. Consumer credit reports are not there to help the consumers. Your credit score gives you a statistical idea of your likelihood of repaying the credit they extend to you. Always behave when it comes to paying your bills – utility bills, credit card bills and installments of any loan that you have taken. This way, you have little worry about your credit score while applying for credit of any kind.

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