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Credit Bureaus

It is probably not a news alert to you that there are three major credit bureaus in the US, all of which maintain a credit score about you. Your credit score supposedly gives an accurate reflection of your ability and organizational skills to repay loans on time. It does not matter if that loan is a mortgage, a car payment, a gas company credit card, a department store credit card, a Visa or MasterCard or Discover or American Express, they all get lumped together. Your credit score not only reflects the debts you currently have outstanding, but also debts you have had in the past and your payment history with that lender, even if that account has been closed for years.

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So what happens is that a single number, usually between 450 and 850, is assigned to you and supposedly reflects your credit-worthiness in the eyes of that credit bureau. Why do I keep saying supposedly? Because the actual value of that number that reflects your credit score is worthless. Let me explain.

First of all, each credit reports to at least one, and sometimes two of the major credit bureaus. Then contracts change, personnel changes, and then they start to report to a different credit bureau. Any errors that were reported to the first credit agency are still there and are no longer being updated, so the error stays there, while the lender is now reporting to the second credit agency. The exception to this rule, which is not even universal, is that mortgage companies usually report to all three credit bureaus, simply because of the size of the loan.

Next, think of the volume of data that the credit bureaus need to maintain. They have a record for each account that you currently have and have ever had, along with details of your payment history with them. That right there is not much, but now multiply that by the total number of businesses and consumers in the entire country, and you can begin to see the large volume of data they need to maintain, which numbers in the BILLIONS of records. If even 0.1% (less than 1%) of these records are in error, that still means there are hundreds of thousands of errors. And for the record, current studies indicate the number of errors is greater than 10%, which is tens of millions!

So there are the facts. No one credit bureau has a completely clear picture of any personís credit history, because lenders report to a variety of lenders. The credit bureaus do not share records. Studies indicate that the credit bureauís data probably contains errors anyway. So is your credit history reflected by the number that any one credit bureau returns as an indicator of your credit worthiness? Absolutely not! How can it be?

But what it is is what it is and we need to work with it. So what you can do to keep your credit history as clean as possible is to make sure that there are no errors reported. That means that you need to get a copy of your credit report, and get a separate copy from each of the three credit bureaus, which are Equifax, Experian, and TransUnion. Then go over the data shown there and dispute anything that reflects poorly on you. In other words, anything at all! Do this with each credit bureau. Some studies have shown that instead of disputing five items in one letter, it is more effective to dispute one item per letter. Do this with EACH credit bureau. Once they receive your dispute letter, they then have 30 days to either prove the information is accurate, or they are obligated by federal law to remove it.

You should do this at least annually, and more likely, at least twice per year. Your credit rating and credit score are very valuable to you, and to have it reflect something that is less than what you deserve makes no sense at all.

What exactly is a credit report? How can it, as they say, drastically affect your life? Have you ever applied for credit and been turned down, but didnít understand why? Then you absolutely need to know how credit reports work, and how important they are to your daily life.

Our mission here is to give you the information you need to make wise credit decisions. Consider this your credit school. We want you to learn. We want you to become educated in this important field. Do your homework Ė and get a good grade. Letís move to Lesson 1.

Lesson 1: Why credit reports were created
First, for some background, letís look at some current credit statistics:

Fact: Todayís consumer has a total of 11 credit obligations on record at a credit bureau. Of these 11, 7 are likely to be credit cards and 4 are likely to be installment loans. 
Fact: 48% of credit card holders carry a balance of less than $1,000. About 10% have total card balances more than $10,000. 54% of consumers carry less than $5,000 of debt, but nearly 30% carry more than $10,000 of non-mortgage-related debt. 
Fact: The typical consumer has access to $12,900 on all credit cards combined. 
Fact: 1 out of 5 consumers who recently applied for credit had credit histories of 20 years or longer. 
Get the message here? Consumer credit is at an all-time high. But so is credit card fraud. Check this out:

Fact: Losses to online fraud at North American retailers has dropped from 3.6% in 2000 to 1.7% in 2003. 
Fact: There were 9.9 million victims of identity theft in 2002. 
All these facts are reasons why credit reports were created. Certainly, in the early days of credit bureaus, credit reports were primarily exchanged between credit lenders Ė for their protection. And today, nothingís changed Ė but now the protection goes both ways, for the creditor and the consumer. Certainly, online fraud numbers have decreased, but thatís because credit reports are serving their purpose.

Lesson 2: Credit reports provide protection
With the amount of credit cards out there, and the number of sales that are credit-related, protection is a major issue. Thatís one of the purposes of credit reports Ė to provide protection. Itís recommended that you obtain a copy of your credit report every 3-6 months. What you see in that report will tell you if youíre in jeopardy of becoming a victim of credit fraud.

Your credit report is actually a history of your credit activity. Hereís what you should expect to see in your credit report:

Basic information, such as your name and any name variations used, your current and previous addresses, telephone number, Social Security (Social Insurance) Number, year and month of birth, and employment information. 
Regular reports about your account from companies whoíve granted you credit. 
Any late payments to those whom you owe money such as utilities, hospitals, landlords, credit cards, auto loans, mortgages, etc. 
If you overdraw your bank account. 
Any delinquent child support payments. 
Any criminal convictions. 
Any bankruptcies. 
Any application for a job with a salary of more than $75,000. 
Any application for more than $150,000 worth of credit or life insurance. 
Any lawsuit or judgment against you. 
Thatís a whole lot of information! So you can see that your life isnít exactly private. But, if the information on your credit report is accurate, then you have nothing to worry about. 

The other factor in protection is, if you obtain a copy every 3-6 months, it may serve as a reminder of your spending habits. It may wake you up to the fact that youíre reaching your credit limits. In that way, youíll be protected from getting too far in the hole. So use your credit report to your advantage.

Lesson 3: Who can access your credit report?
Itís quite staggering how many people have access to your credit report. Anyone with a ďlegitimate business needĒ can gain that access. That includes:

Those considering granting you credit 
Insurance companies 
Employers and potential employers, if they have your consent 
Companies with which you have a credit account, to monitor your account 
Those considering your application for a government license or benefit if the agency is required to consider your financial status 
A child support enforcement agency 
Any government agency, but only to get your name, current and previous addresses, and current and previous employers 
Thatís a lot of people who can see your personal files. Thatís why itís so important to keep an eye on your credit report regularly. 

Lesson 4: Errors in your credit report
Errors can happen in your credit report. With the vast amount of information going in and out of the credit bureau there are bound to be duplicate names, or very similar names. And since the information passes through human hands, mistakes can happen. The July 2000 issue of Consumer Reports quoted a study where more than 50% of the credit reports checked contained errors. You wouldnít expect that number to be so high but, as we said, mistakes do happen. Thatís why itís so important that you regularly check your credit report.

Another reason for errors may be that your identity may have been stolen. Look back at the statistics above: 9.9 million identities stolen! Thatís more than enough reason to know whatís in your credit files.

But you have recourse if you find errors. The law gives you the right to request a copy of your credit report (sometimes for a minimal charge). If you find what you believe to be errors, then thereís a process you can follow to correct or, at least, dispute what you find there. The credit bureau must make a note on your credit report that youíre disputing something, along with your reasons for that dispute. The downside to this is that the credit bureau wonít make any changes unless theyíre given new information from your creditor. So your dispute will be with the creditor. This can take time and effort Ė but itíll be worth it. A blemish on your credit history can affect your daily life Ė more than youíd think.

Lesson 5: Regularly get a copy of your credit report!
Now you have the information you need regarding credit reports. Now you know why itís imperative that you regularly request a copy of your credit report. This is your financial report card. This report card is perused and examined by many people and companies throughout your daily life. Now you know why itís so important you do your homework. And your homework is to request a copy of your credit report. So do your homework Ė and youíll get a good financial grade!





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