Contributing Writer: What You Need to Know About Credit Reports
Creditors keep their rating standards secret, making it difficult to know how to improve your credit rating. Nevertheless, it is still important to understand the factors that determine creditworthiness. And reviewing your credit report periodically can also help protect you against identity theft that could destroy your credit rating.
Many factors are used to determine credit decisions. including:
• Payment history/late payments
• Charge-offs (cancelled debt)
• Closed accounts and inactive accounts
• Recent loans
• Co-sign an account
• Credit limits
• Credit reports
• Debt to income ratios
Get your credit reports: Credit reports are records of consumer bill paying habits, but do not include FICO credit scores. Also called credit reports, credit files and credit history, they are collected, stored and sold by three credit bureaus: Experian, Equifax and TransUnion.
The Fair Credit Reporting Act (FCRA) requires each of the three credit bureaus to provide you with a free copy of your credit report, upon your request, every 12 months. If you have been denied credit or believe you have been denied a job or insurance because of your credit report, you can request that the credit bureau involved in the decision provide you with a free copy of your report. credit – but you must request it within 60 days of receiving the notification.
You can check your credit report three times a year for free by requesting a credit report from a different agency every four months.
The FRCA was passed in 1970 to give consumers easier access and more information about their credit reports. This law gives you the right to find out what information is in your credit report, to challenge information you believe is inaccurate or incomplete, and to find out who has viewed your credit report in the last six months.
Understanding your credit report: Credit reports contain symbols and codes that are abstract to the average consumer. Each credit bureau report also includes a key that explains each code. Some of these keys decrypt the information, but others cause more confusion.
Read your report carefully, noting anything you don’t understand. The credit bureau is required by law to provide qualified personnel to explain this to you. If the accounts are identified by a code number, or if there is a creditor listed on the report that you do not recognize, ask the credit bureau for the creditor’s name and location, so you can check whether you actually hold an account with this creditor.
If the report includes accounts that you don’t believe are yours, it’s extremely important to know why they are listed in your report. It’s possible that these are the accounts of a relative or someone with a similar name to yours. Less likely, but more importantly, someone may have used your credit information to apply for credit on your behalf. This type of fraud can significantly damage your credit report, so investigate the unknown account as thoroughly as possible.
In light of the many credit card and other breaches, it is recommended that you perform an annual review of your credit report. You need to understand every piece of information on your credit report so you can identify any errors or omissions.
Disputing errors: The FCRA protects consumers against inaccurate or incomplete information on credit files. The FCRA requires the credit bureaus to investigate and correct any errors in your file.
If you find incorrect or incomplete information on your file, write to the credit bureau and ask them to investigate the information. Under the FCRA, they have about 30 days to contact the creditor and verify if the information is correct. Otherwise, it will be deleted.
Be aware that the credit bureaus are not required to include all of your credit accounts in your report. If, for example, the credit union that holds your credit card account is not a paying subscriber of the credit bureau, the bureau is not obligated to add this reference to your file. Some can do it, however, for a small fee.
This column is for general information only and should not be taken as specific advice. If you have credit questions, consult your financial advisor.
Norm Grill is Managing Partner of Grill & Partners LLC, chartered public accountants and consultants to private companies and high net worth individuals, with offices in Fairfield and Darien.