A credit report is simply a compiled record of all your credit history and activity, including details of all the companies that have given you credit or loans. It also includes all loan details and payment history, as well as credit limits. In-depth details of foreclosures, reports of bankruptcy, and lawsuits are also part of your credit report. Your credit report influences terms like interest rates offered by lenders.
How information gets on your credit report
With the basic knowledge of your credit report, it begs the question of how this information gets on your credit report, and how regularly it gets updated. Well, lenders would be interested in knowing what they are dealing with before making some critical decisions. As often as monthly, they will run your credit profile through a reporting company. Your credit report is likely to vary owing to the fact that different lenders submit these profiles at different times of the month, and to different reporting companies. The three reporting companies are Equifax, TransUnion, and Experian.
It is worth noting, your credit report is not limited only to information appertaining to credit, but will include valuable details such as your personal information, residential and business addresses (current and previous), and names of your employers among other details.
Importance of credit reports and scores
Your credit report goes a long way in reflecting on your financial reliability. Financial institutions and lenders rely heavily on the information available on the report; therefore, they will gauge you on the same. When you apply for a car loan, a mortgage, or a credit card, your credit report speaks volumes about you.
Credit scores facilitate a reasonable measure of your credit risk and help greatly in the timely processing of grants. They have simplified things a big deal and majority of top US lenders have benefited largely ensuring;
Faster loan approvals – Lenders can approve loans quickly because scores can be delivered within a very short time. Mortgages no longer take weeks to be approved as it used to be the case; times have changed as it takes only a few hours as long as the borrower’s score is above the lender’s pass mark.
Bad credit doesn’t count – Having a poor credit history does not hinder you from accessing loans as some reports get overtaken by time. A record of good payment patterns reflecting on your credit report only works to your advantage and a lender is easily wowed by your ability and willingness to get your finances in order.
More loans are made available – Regardless of your stained past, lenders will base their decisions on your current credit score to approve a loan. Your proof of continued ascendancy and consistency in your credit report gives a lender the confidence that they will not be taking huge risks lending you money. It is important to understand that different lenders use different guidelines, and if one lender turns your application down, another one can approve it.
How to deal with a negative credit report
It takes 7 to ten years for any negative information to get erased from your credit report, depending on whether you’ve been declared bankrupt. On the flipside, positive information is valid for about 10 years from a closure of the corresponding account. For car loans and mortgages which have fixed terms of repayment like the number of years, information on your credit is useful. For credit cards and other revolving accounts, the positive information stays on your report for the whole period of account activity.
Having a credit report with negative information could complicate issues especially when you need to access loans. However, there is a way to maneuver your way through the process. You may choose to attach a statement alongside your credit report detailing why you have defaulted in one way or the other. The same statement will be made available to anyone seeking your report. Lenders are humans too, and if your statement can convince them beyond doubts that you can correct things up, there is every chance your loan application will be considered.
Who can access your credit report?
Under the Fair Credit Reporting Act, your credit report is highly restricted to be accessible only to credit bureaus and lenders. However, under specific circumstances your report can be made available to the following;
- Car insurance companies
- Mortgage Lenders
- Government agencies
- Collection agencies
- Utility companies
- Judgment creditors
There is no way anyone else can access your credit report unless they have a court order, or you have given prior authorization.
How to check your credit report
With the knowledge that a good credit standing not only guarantees faster loan approval but also better terms, it is imperative to know where you stand by checking your credit report. There are several websites available online from where you can access your report, but be wary, lenders will not check your profile through all of them. It is good to seek assistance from the top credit bureaus in order to review your history. Once you obtain your credit report, take time to go through the report carefully, checking for the slightest of mistakes and any wrong information on your profile. Report any error to the credit agency for rectification since lenders will base their judgments on what is available for them.
Take note of all defaults and act on them accordingly. More often than not, you are faced with financial challenges and you end up making late payments. This is a trend that can land you on the bad books of lenders. However, if your history shows a consistent pattern of regular payments in the recent past, you may successfully contest it through the agency.
Confirm that all accounts appearing in your credit history are indeed yours. All your credit cards, bank accounts, and loans must be clearly listed under your name, and none of your accounts or cards should be omitted. Should you find any slight discrepancy, take it up with the agency for immediate action. Similarly, if you cannot identify an account in your report, this could be a case of identity theft and you should inform the agency.
In a nutshell
It is very important to review your credit report at least once every year, whether you are planning to borrow money or not. Your credit score could be damaged as a result of an error or identity theft, and you end up paying dearly for failing to take appropriate action. The same way, your financial woes of the past should not be left to dictate your future plans. There is a rebuilding process that involves getting your books in order for purposes of the future financial plans.
Click here for more information on the rebuilding process for your credit.