Credit Report

A report generated by the credit bureau that contains the borrower's credit history for the past seven years. Lenders use this information to determine if a loan will be granted.

Credit history or credit report is, in many countries, a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score. In the U. S. , when a customer fills out an application for credit from a bank, store or credit card company, their information is forwarded to a credit bureau. The credit bureau matches the name, address and other identifying information on the credit applicant with information retained by the bureau in its files. That's why it's very important for creditors, lenders and others to provide accurate data to credit bureaus. This information is used by lenders such as credit card companies to determine an individual's credit worthiness; that is, determining an individual's willingness to repay a debt. The willingness to repay a debt is indicated by how timely past payments have been made to other lenders. Lenders like to see consumer debt obligations paid on a monthly basis. There has been much discussion over the accuracy of the data in consumer reports. However, the only scientifically researched studies that include sample sizes large enough to be valid have generally concluded the data in credit reports is very accurate. The credit bureaus point to their own study of 52 million credit reports to highlight that the data in reports is very accurate. The Consumer Data Industry Association testified before Congress that less than two percent of those reports that resulted in a consumer dispute had data deleted because it was in error. If a consumer disputes some information in a credit report, the credit bureau has 30 days to verify the data. Over 70 percent of these consumer disputes are resolved within 14 days and then the consumer is notified of the resolution. The Federal Trade Commission states that one large credit bureau notes 95 percent of those who dispute an item seem satisfied with the outcome. The other factor in determining whether a lender will provide a consumer credit or a loan is dependent on income. The higher the income, all other things being equal, the more credit the consumer can access. However, lenders make credit granting decisions based on both ability to repay a debt (income) and willingness (the credit report) as indicated in the past payment history. These factors help lenders determine whether to extend credit, and on what terms. With the adoption of risk-based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the annual percentage rate (APR), grace period and other contractual obligations of the credit card or loan. Credit ratings vary from scoring model to scoring model, but in general the FICO scoring system is the standard in U. S. , Canada and other global areas. The factors are similar and may include:There are many businesses that aim to make money by providing services to consumers to check their credit reports and confirm the information in them. These companies advertise heavily. In the US, the Fair Credit Reporting Act and its amendments require that any national consumer credit reporting agency (including Experian, Equifax, and TransUnion) and any national specialty consumer reporting agency (including Innovis, PRBC, Teletrack) provide a free copy of the credit reports for any consumer who requests it, once per year. Free annual credit reports for Experian, Equifax and TransUnion may be requested at https://www. annualcreditreport.com. Note that many imposter websites with names similar to www. annualcreditreport.com exist, and users will see promotions for extra credit-checking services that cost money. Carefully following the process and declining for-pay services will allow users to get their free annual credit reports. Also note that the free reports do not include the consumer's credit score. Rather, they provide a list of accounts so users can confirm that no erroneous information is on the reports. Information from the GSA Federal Citizen Information Center (US government) is available for free download ins.pdf form at http://www. pueblo. gsa. gov. Look for the pamphlets "Building a Better Credit Report" and "Your Credit Scores. "Free information about understanding one's credit report and credit score is also available from MoneyWi$e, a non-profit partnership between Consumer Action and Capital One, at http://www. money-wise.org. The government of Canada offers a free publication called Understanding Your Credit Report and Credit Score. This publication provides sample credit report and credit score documents with explanations of the notations and codes that are used. It also contains general information on how to build or improve credit history, and how to check for signs that identity theft has occurred. The publication is available online through http://www. fcac. gc. ca, the site of the Financial Consumer Agency of Canada. Paper copies can also be ordered at no charge for residents of Canada. Credit history usually applies to only one country. Even within the same credit card network, information is not shared between different countries. For example, if a person has been living in Canada for many years and then moves to the United States, when they apply for credit cards or a mortgage in the U. S. , they would usually not be approved because of a lack of credit history, even if they had an excellent credit rating in their home country and even if they had a very high salary in their home country. An immigrant must establish a credit history from scratch in the new country. Therefore, it is usually very difficult for immigrants to obtain credit cards and mortgages until after they have worked in the new country with a stable income for several years. Some credit card companies (e. g. American Express) can transfer credit cards from one country to another and this way help starting a credit history. Adverse credit history, also called sub-prime credit history, non-status credit history, impaired credit history, poor credit history, and bad credit history, is a negative credit rating. A negative credit rating is often considered undesirable to lenders and other extenders of credit for the purposes of loaning money or capital. In the U. S. , a consumer's credit history is compiled by consumer reporting agencies or credit bureaus. The data reported to these agencies are primarily provided to them by creditors and includes detailed records of the relationship a person has with the lender. Detailed account information, including payment history, credit limits, high and low balances, and any aggressive actions taken to recover overdue debts, are all reported regularly (usually monthly). This information is reviewed by a lender to determine whether to approve a loan and on what terms. As credit became more popular, it became more difficult for lenders to evaluate and approve credit card and loan applications in a timely and efficient manner. To address this issue, credit scoring was adopted. A benefit of scoring was that it made credit available to more consumers and at less cost. Credit scoring is the process of using a proprietary mathematical algorithm to create a numerical value that describes an applicant's overall creditworthiness. Scores, frequently based on numbers (ranging from 300–850 for consumers in the United States), statistically analyze a credit history, in comparison to other debtors, and gauge the magnitude of financial risk. Since lending money to a person or company is a risk, credit scoring offers a standardized way for lenders to assess that risk rapidly and "without prejudice. " All credit bureaus also offer credit scoring as a supplemental service. Credit scores assess the likelihood that a borrower will repay a loan or other credit obligation. The higher the score, the better the credit history and the higher the probability that the loan will be repaid on time. When creditors report an excessive number of late payments, or trouble with collecting payments, the score suffers. Similarly, when adverse judgments and collection agency activity are reported, the score decreases even more. Repeated delinquencies or public record entries can lower the score and trigger what is called a negative credit rating or adverse credit history. Your credit score is a number calculated from factors such as the amount of credit outstanding versus how much you owe, your past ability to pay all your bills on time, how long you've had credit, types of credit used and number of inquiries. The three major consumer reporting agencies, Equifax, Experian and TransUnion all sell credit scores to lenders. Fair Isaac is one of the major developers of credit scores used by these consumer reporting agencies. The complete way in which your FICO score is calculated is complex. One of the factors in your Fico score is credit checks on your credit history. When a lender requests a credit score, it can cause a small drop in the credit score. That is because, as stated above, a number of inquiries over a relatively short period of time can indicate the consumer is in a financially difficult situation. The information in a credit report is sold by credit agencies to organizations that are considering whether to offer credit to individuals or companies. It is also available to other entities with a "permissible purpose", as defined by the Fair Credit Reporting Act. The consequence of a negative credit rating is typically a reduction in the likelihood that a lender will approve an application for credit under favorable terms, if at all. Interest rates on loans are significantly affected by credit history; the higher the credit rating, lower the interest while the lower the credit rating, the higher the interest. The increased interest is used to offset the higher rate of default within the low credit rating group of individuals. In the United States insurance, housing, and employment can be denied based on a negative credit rating. Note that it is not the credit reporting agencies that decide whether a credit history is "adverse. " It is the individual lender or creditor which makes that decision, each lender has its own policy on what scores fall within their guidelines. The specific scores that fall within a lender's guidelines are most often NOT disclosed to the applicant due to competitive reasons. In the United States, a creditor is required to give the reasons for denying credit to an applicant immediately and must also provide the name and address of the credit reporting agency who provided data that was used to make the decision. In some countries, people can have more than one credit history. For example, in Canada, although most Canadians are not aware of it, every person who applied for credit before obtaining a Social Insurance Number has two separate credit histories, one with SIN and one without SIN. This is due to the credit reporting structure in Canada. This can lead to two completely separate parallel histories, and often leads to inconsistencies (although typically the person in question will never notice the inconsistencies), because when a lender asks for someone's credit report with SIN, what the lender gets is different from what he would have gotten if he asked the report without providing the SIN. This is because, contrary to popular belief, when someone gets a new SIN for whatever reason, the two credit files are never merged unless the person requests specifically. As a result, a record with SIN zeroed out is kept separately from a record with SIN. Note this happens without the person even knowing it.