The Workings of Credit Reports
Simply put, a credit report is a record of financial history that is used to determine one’s worthiness to obtain credit from any lending institution. It is absolutely essential for consumers to fully understand their credit report and its ability to affect their daily life in a serious manner. This is because the details contained within your credit report can and will be accessed by any business from which you are requesting an extension of credit.
Equifax, Trans Union, and Experian are the three major credit bureaus that document your spending history, which illustrates your spending habits. Based on the information obtained, which can date back as far as six or more years, the report is given a rating which will change as your habits change. When you request credit from any business, they can contact the credit bureau and obtain your rating for a fee. They do this to help determine the level of risk that would be involved in lending you money. Having a poor credit rating will usually result in having an application for credit rejected, which can make it very difficult to live comfortably.
The most damaging aspect of credit reports are known as “blemishes“, which are reports of late, missed, or defaulted payments, among other poor spending habits. Blemishes are normally removed from a report after seven years due to the Federal Fair Credit Reporting Act; however, it is possible in some cases to take less time. Going bankrupt, on the other hand, reflects extreme financial instability and therefore can remain on a credit report for up to ten years.
Another type of blemish would be excessive inquiries into your credit. Any time an institution requests to see your report, it is recorded on your report and remains there for two years. Having a long list of inquiries creates an impression of either credit abuse or consecutive rejections, so it is unwise to apply for credit unless it is absolutely necessary.
At one time it used to be mandatory that consumers pay a fee to obtain a copy of their credit report from any of the main bureaus at any time. Luckily, as a result of the need for consumers to be more aware of and responsible for their credit history, the laws have recently allowed for everyone to obtain one free report each and every year. All you need to do is contact a bureau, give them your information, and your report will be mailed to you.
Visit Experian to receive your free credit report