If you plan to apply for credit card or loan to buy a car or house, then it is advisable to start keeping an eye on your credit three to six months prior to the event. As a first step, start to know more about your credit reports, which are available from leading credit bureaus such as TransUnion, Equifax, and Experian.
These bureaus sell an individual’s credit report to lenders, creditors, insurers, potential employers and other businesses which need to evaluate your credit.
Following are the five key things that need to be known about credit reports.
- Constituents of a credit report: A credit report consists of personal identification information such as name, address (current and previous), social security number, telephone number, birth date, employer history, credit history, public information (tax liens, court judgments, bankruptcy), report inquiries (details credit granters who received your credit report) and dispute statements (both consumers and creditors put their side of the story).
- Interpreting a credit report by inquirers: Potential inquirers tend to label an individual as high credit risk, if he/ she has more number of hard inquiries (applications for mortgage/ car loans/ credit cards). Inquiries to either view your own credit reports or let the potential employer view them are considered as soft inquiries, which hardly affect your credit. A potential inquirer would also look into an individual’s unutilized credit/ open credit accounts, any missed payment history, maxed out credit lines (data of an individual moving debt on a credit card to other one with available credit limit) and the proportion of debt to total income (a debt to total income ratio below 20% is advisable).
- Who can access your credit report: TheFair Credit Reporting Act (FCRA) specifies that your credit report can be viewed by people with whom you have initiated business, such as lenders, landlords, credit card companies, and these inquiries count towards hard inquiries.
- Obtaining a free credit report: FCRA empowers individuals to apply for a free copy of his/ her credit report, once every 12 months. For accessing it within 12 months, you need to pay a maximum of $10 plus taxes, shipping and other handling charges. You can also download a free copy of your credit report from AnnualCreditReport.com.
- Rights under FCRA: As per FCRA, all inquirers with a business relationship and permissible purpose can access your credit report. In addition, an individual is empowered to know reasons for credit denials, dispute data inaccuracies in credit reports, removal of names from marketing lists, seek damages from those accessing credit reports without any permissible purpose.
Last, but not the least, a credit report does not include any credit scores, which are based on the information being found in your credit report. To check the health of your credit scores, you will need to access your credit report.
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