Credit reports are documents which are created and assembled by credit reporting agencies (CRA). there are 3 main credit reporting agencies in the United States, including:
- TransUnion; and
Credit reports may contain detailed information about an individual, their financial history, and their financial status. These reports may also include how many credit cards an individual has as well as the standing of the accounts.
Businesses and lenders use the information in an individual’s credit report to assign them a credit score. A credit score is based on an individual’s:
- Payment history and whether they pay obligations on time or only when they are past due;
- Outstanding balances on any credit they have;
- The length of credit history;
- Applications for new credit accounts; and
- Types of credit accounts, such as:
- a mortgage;
- car loans; and
- credit cards.
A credit reporting agency calculates an individual’s credit score based upon the information contained in their credit report. An individual can find their credit score on a credit report of their credit card statement.
When an individual applies for credit, such as a mortgage loan, the lender will typically tell the individual what their credit score is at that time. An individual’s credit score may range from 300 to 850.
The higher the number, the better the individual’s credit score. A higher score indicates an individual is creditworthy, or likes to pay back their loan on time as promised in their loan agreement.
It is important to note that an individual can have more than one credit score. They may be calculated by different lenders, companies, or the three credit bureaus.
An individual’s credit score is important because it affects whether they are able to obtain credit, which may include a mortgage to purchase a home as well as what their interest rate will be. A credit score may also affect whether an individual can rent a home or an apartment.
In certain cases, an individual’s credit score may affect whether they can get a job. An automobile insurance company will often charge a higher interest rate for a driver who has a bad credit score.
When an individual is having a utility service turned on at a new residence, the utility company will check the individual’s credit to determine whether or not they will be required to pay a security deposit. An individual may discover that they have a bad credit score when they are refused a loan for which they have applied.
If an individual finds that their credit score is low, there are steps they can take to improve the score. An entity is required to provide an individual the name, address, and telephone number of the credit reporting agency (CRA) that provided the report if, based on that information, an individual is denied:
- Insurance; or
- A job.
Pursuant to the Fair Credit Reporting Act (FCRA), an individual has the right to request a free copy of their report within 60 days if a company denies them credit based on the report. There are some companies that promise to fix or repair an individual’s credit for a price.
However, there is no way to remove negative information from an individual’s credit report if that information is accurate. If an individual does have a low credit score, they need to add positive information to their report.
This can be done by obtaining credit, but not more than what the individual can handle financially so they make their payments on time. An individual’s payment history affects their credit score more than any other factor.
Payment history is 35% of an individual’s credit score. Because of this, taking care of past due accounts is critical to credit repair.
The worst account status is a charge off. This occurs when an account is 180 days past due.
If an individual does have past due accounts, they can contact their creditor and inquire how to get the account back to current status. Creditors may be willing to waive penalties or fees or to spread the balance out over several payments.