It happens thousands of times each day. A person finds the perfect new car, home or other large expenditure, completes the paperwork and applies for a loan to pay for their dreams and then the phone call comes. A voice on the other end says, "I'm sorry, but your loan application has been denied." Those nine little words crush your dreams. The problem that many will find is with their credit report. Free credit reports are important for every consumer in the United States as well as in Canada and United Kingdom (UK). A lot of times when we need to get a loan, the lender will always check your credit history and credit score to make sure that the borrower is credit worthy. It makes sense to review your free annual credit report from all three major credit report bureau including Experian, Equifax, and Transunion to make sure that there are no errors in reporting. Best of all, the government requires these reports to be free for people to check at least once a year.
What is a Credit Report?
A credit report contains information about a person's previous credit activities. It has data about loans and credit card accounts that you may have had or currently have, as well as their balances and a report of accountability in paying bills. In addition, the report shows any actions that may have been leveled towards you due to unpaid bills.
The company that gathers this information to sell to other financial institutions is a CRA or consumer reporting agency. CRAs collect information concerning consumer's credit activities, organize it in a giant database and supply it to other institutions for a fee. Credit bureaus are the most common type of CRA.
In the US, there are three major credit bureaus as well as many smaller agencies that serve the local markets. Each of the credit bureaus is required by law to supply consumers with an annual free credit report upon request.
What is a Credit Score?
The credit score is calculated from the credit report and is based on a variety of scoring components. Consumers need to understand that their report offers an outline of their previous credit history including obtaining, charging, borrowing and repayment. A good credit score makes it easier to reach your financial goals and likewise a poor credit score can severely limit the credit opportunities before you. As previously mentioned, it can influence your ability to get approved for credit cards as well as purchasing a house or car. Since some employers also look at an employee's credit rating, a poor score can even affect future employment because a low score can signal to employers that the candidate has money problems and may not be trusted with money. Consumers should actively protect their credit score by making payments on time and avoiding taking more credit than they can afford. If your score is already compromised, it is best to review your report and see which areas to improve on such as settling debt payments or fixing mistakes.
What's the Difference Between a Credit Report and Credit Score?
The major difference between a credit report and credit score is that the report is a detailed account of credit activity. It lists accounts, both open and closed for the past seven years along with amount currently owed and payment history. People usually use this to see if there are any credit inquiries, number of credit lines opened, debt borrowed and repayment. However, a credit report does not have an official number that quantifies how responsible a person is with their credit. This is where a credit score comes in. Based on a wide variety of metrics, a person is graded with a credit score range that spans between 400 and 850. Anything above 700 is considered a good score and will usually get borrowers the best loan rates.
Why Get a Credit Report?
Credit reports usually include four different types of information: identifying information, credit information, public records information and recent inquiries. In order to avoid unwelcome surprises when it comes time to apply for a mortgage, car loan or credit care, it is important that a person reviews a copy of their report before submitting an application. It is common for errors to exist in the reports due to simple human error. In addition, identity theft is a real threat today, and it is possible to see unauthorized activities in your report and not even know it until it is too late. Taking a proactive approach by checking your free yearly credit report will be advisable so that your credit history can be fixed quickly if someone obtains credit without your approval. Doing so will also allow people to make the necessary corrections before applying for any kind of credit loan.
The 3 Major Credit Bureaus
The three major credit bureaus are Equifax, Transunion and Equifax. Each collects its own information and there is a good possibility that the data in the reports will differ. In addition, the company to which you are applying for a loan whether it is for a home loan or auto loan can pull your credit reports from any one or all three credit bureaus. It is important to see a 3 in 1 credit report or separate reports from each bureau in order to prevent unwelcome surprises. Contact information for the three bureaus is as follows:
Equifax
http://www.equifax.com
P.O. Box 105873
Atlanta, GA 30348
Phone Number: (800) 685-1111
TransUnion
http://www.transunion.com
P.O. Box 1000
Chester, PA 19022
Phone Number: (800) 888-4213 or (800) 916-8800
Experian
http://www.experian.com
P.O. Box 2104
Allen, TX 75013-2104
Phone Number: (888) 397-3742
How to Fix an Error in your Credit Report
If, upon viewing your discount credit reports, you spot an error, it is important to contact the CRA as soon as possible. The company must begin researching the data. If it is found to be incorrect, it must be removed. By law, the agency has up to 45 days from receipt of your request to complete the process. If you make a request, the corrected report must be sent to any parties that have received the report within the last six months. If the report has been sent to an employer within the last two years, a corrected report can be sent to them too. In some cases, it is important that the request be sent by certified mail with a return receipt requested.
In some instances, the CRA may not correct the information, even though you believe it to be incorrect. In these cases, you are allowed to present your account of what happened in 100 words or less. This statement must be attached to the file and supplied to anyone requesting a report. Use the statement only to clarify any inaccurate information and not to explain your reason for a delinquency.
How to Get a Free Annual Credit Report
Consumers can request a free annual credit report once each year from each of the national CRAs. The request may be processed through www.annualcreditreport.com, or by contacting any of the companies by mail or phone. In order to process the request, the companies will need specific information that includes name, current and previous address, phone number, SSN, and birth date. In addition, they may ask for a copy of your driver's license, a bank statement or utility bill. When calling by phone, you may be asked to identify a company with which you have an account and information such as monthly payment amount for identification purposes.