Personal Finance Essentials
Understanding Your Credit Report
The Financial Document That Controls
More of Your Life Than You Think
Lenders thinking about loaning money to you, employers thinking of hiring you and landlords thinking of renting an apartment to you all rely on credit reports. These reports, produced by Experian, Equifax and TransUnion, show your credit card and loan status as well as details about your employment history, bankruptcies, lawsuits and arrests.
A credit report reveals your financial identity – everything from where you live to what credit card accounts and loans are in your name to whether you pay your bills on time. Banks and other lenders use credit reports to decide whether it is smart business to lend money to you, and if so, how much to charge you in interest. The less certain it is that you will repay the loan, the higher the interest rate you will be charged. Landlords use them to determine whether you are likely to pay your rent on time. Even insurance companies and employers examine credit reports on the theory that people with good credit are more likely to act responsibly.
A bad credit report can limit your ability to obtain credit, get a low interest rate when borrowing money, rent an apartment, obtain a job or even get a cell phone.
Your Credit Report Is Free
The Fair Credit Reporting Act gives you access to one free credit report from each of the three nationwide reporting agencies every twelve months. Visit AnnualCreditReport.com to request yours. You should do this annually – and definitely two to three months before making any major purchase such as a car or a home. Reviewing your report ahead of time gives you the opportunity to correct any inaccuracies before you apply for a loan.
What to Look for in Your Report
When you receive your report, confirm that your name is spelled correctly, your Social Security Number is accurate and that all accounts listed as yours are truly yours. Make sure the information about each account is current and accurate and verify that no one else’s credit information appears on your report.
A survey found that 79% of credit reports contained errors – ranging from misspelling a subject’s name to including delinquent accounts that belong to someone else. Some reports even listed living people as deceased. Errors like these can affect your ability to borrow, rent or get hired, and you are the only one who will catch them.
Reviewing your credit report regularly also helps you spot identity theft. If someone uses your personal information to open accounts without your knowledge and then fails to pay the bills, your credit will be damaged – sometimes for years before you realize what happened.
How Long Negative Information Stays on Your Report
Outstanding debts, missed payments and foreclosures generally remain on your credit report for seven years. Bankruptcies stay on for up to ten years. There is no shortcut around this. Consistent, responsible financial behavior is the only real path to a clean credit record.