Credit Reports: An
Overview
Your credit report is a summary of your financial
reliability. For the most part, it details your history of paying debts
and other bills. Credit bureaus prepare credit reports to be used
primarily by lenders in determining the credit worthiness of loan
applicants. The wealth of information gathered by credit bureaus,
coupled with the speed of today’s computer systems, explains why
consumers can obtain loans and other services, many times within
minutes.
The Contents of Your Credit Report
In general, there are four components to a credit
bureau report. The first section contains identifying information
including name, Social Security number, date of birth, current and
previous addresses, telephone number, and employer. This information
helps ensure the report generated pertains to you and does not
erroneously contain someone else’s credit history.
The second section includes information contained in
public records. This information generally comes from courthouse
records and includes bankruptcy records, foreclosures, tax liens,
court-ordered payments, and late child-support payments. Lenders use the
information to determine if you have previously defaulted on an
obligation or have legal judgments against you. Derogatory information
can remain on your credit report for up to seven years, and bankruptcy
information may remain for ten years.
The third section contains other credit history
information, such as a listing of your credit cards and loans, and
whether payments were timely. As with the public information discussed
above, negative information can remain on your report for seven years,
and bankruptcy information may remain for ten years.
The fourth section contains inquiries listing
creditors, insurance companies, or other parties that requested your
credit report. Typically inquiries remain on your credit report for two
years.
Your credit report does not contain information
about your checking or savings account balances, brokerage accounts,
medical history, race, sex, religion, national origin, or your driving
record.
How Do Credit Bureaus Gather Information?
Lenders voluntarily supply the information to credit
bureaus on an ongoing basis. No federal laws require companies to submit
the data.
Why do lenders engage in this practice? Quite
simply, having access to current and reliable information about a
person’s credit history helps lenders make informed decisions and
expedites the offering of appropriate financial products and services.
Who May Obtain Your Credit Report?
Not just anyone can gain access to your credit
report. The Fair Credit Reporting Act defines who may obtain your
report. Generally, a third party can obtain your report when considering
applications made for a loan, a job, insurance, or an apartment.
If you are paying on a loan or credit card as
agreed, the institution where you have the account can obtain an updated
credit report as part of its regular review of the relationship. This
includes a review for warning signs indicating financial stress and
potential problems fulfilling your obligations.
Summary
As you can see, your credit history can be a very
valuable asset in your ability to manage your financial future. By
handling your financial obligations responsibly, you create the
opportunity to access credit at almost a moments notice. On the other
hand, credit obligations handled irresponsibly can become a matter of
public record and severely limit your future access to credit.
