subject: What You Need to Know About Credit Reports [print this page] What You Need to Know About Credit Reports
Have you ever applied for a loan in order to purchase a car or a home, or have plans of doing so in the near future? If so, it is important that you know about your credit score and how it determines your future purchasing abilities. If you have yet to read up on the fundamentals of starting credit reports and the ramifications of the different scores, there is vital data that you are missing out on. Before you begin considering your next big purchase, make sure that you know the facts:
What exactly is a credit report?
In order to determine a consumer's reliability, institutions that offer credit must know the financial track record of consumers applying for credit or starting credit cards. For example, if an individual has made poor decisions with their credit (late payments, defaulted on a loan, etc.), the institution offering the loan will negotiate the loan's terms based on that person's poor credit history (smaller amount offered, higher interest rate, denial of credit, etc.). Conversely, if that same person has a spotless credit history, then the loan institution will offer them a much more attractive set of terms.
Credit reports streamline this process by quantifying an individual's credit history into a numerical score; loan institutions then use that score to determine each candidate's credit worthiness. In total, there are three agencies that generate three different scores: FICO, Beacon, and Empirica scores. A full credit report should consist of each of these numbers, which are averaged together in order to create a single credit score.
Why is it important to obtain my own credit report?
Your credit report not only includes your FICO, Beacon and Empirica scores, but also a detailed list of personal information. This list includes data such as your name, address, and social security number, as well as a fiscal history of credit including lenders, terms of loans, and credit performance; this includes credit cards you started within the last seven years. As with any detailed report, errors do occurthat's why it's crucial that you both understand how your score is generated, and that you obtain your report and read it carefully for errors. Any error can result in an incorrect score, possibly hurting you and your chances of obtaining fair terms from lending institutions. If an error is found, then you are given the chance to report the error and have it investigated by the credit agency responsible.
Your score is in your hands.
The actions you take with your credit are your responsibility, but there is no reason to be uninformed when it comes to how lenders determine your borrowing eligibility. With the knowledge of credit scores and how they are generated, you can begin to make that information work for you instead of against you. No one ever wishes to be turned down by creditors because of a poor credit history, or to receive poor loan terms for an important purchasetake the time to understand your score, and begin taking steps today to make that score benefit your lifestyle.
