1. Understanding Credit Reports
Family Economics & Financial Education

2. Credit Reports Credit report - a record of a consumer’s credit history
Credit history - a record of transactions involving credit use
Individuals do not have a credit report if they have not previously used credit
Affects one’s ability to acquire credit

3. Information on a Credit Report
Name and aliases
Current and past addresses
Marital status
Date of birth
Employment history
Public records
Judgments, criminal, and bankruptcy
Credit card, store card, book clubs, music clubs, etc.
Payment history
Credit card, store card, book clubs, music clubs, etc.

4. Information continued
Financial records
Loans, bounced checks, closed accounts, etc.
Loans/leases
Rent-to-own contracts, payday loans, lease agreements, etc.
Credit inquiry-
Number of credit inquiries
Credit inquiry -a request for your credit. Can be done by businesses you apply to for credit or whom pre-approve you for credit
*Medical information is not on a consumer’s credit report, but late medical payments are.

5. Building Credit History
Important for consumers to build a credit history to be able to purchase items on credit
For example – house, vehicle
Affects a young adult’s ability to make a purchase on credit in the immediate future including:
Renting an apartment
Buying a car
Purchasing electronics or other merchandise

6. Building Credit History continued
Store accounts (JcPenny or Sears charge accounts)
Credit card accounts
Even with a co-signer
Loan from financial institution
Acquire a small loan from a financial institution and pay the loan off in timely payments to develop a positive credit history

7. No Credit History
While the following are all positive financial practices, a credit history is not built if a consumer performs the following actions:
Having no history of credit use
Not having any credit accounts in own name
Paying cash for all major purchases
Paying phone and utility bills on time

8. Positive Credit
Being responsible with credit and finances can lead to good credit
A consumer may develop and keep good credit by:
Practice good banking techniques
Keep checkbook balanced, do not bounce checks
Pay bills consistently and on time
Keep public records free of bankruptcy
Have no criminal record
Keep a reasonable or small amount of debt
Apply for credit sparingly, keeping credit inquiries low
Hold a low number or credit/store cards
Check credit report annually to remove errors
Maintain reasonable amount of unused credit

9. General Rule
Percentage of current debt compared to the total credit available is reviewed by potential lenders
Keep the amount of debt currently held at 25% of the total amount of available credit
For example - if Sue’s total amount of credit available is $1,000, her current amount of debt should not exceed $250

10. Negative Credit
Being irresponsible with credit and finances can lead to poor credit
A consumer may develop or keep poor credit by:
Bouncing checks
Routinely paying bills late
Having a criminal record
Holding a large amount of debt
Holding an unreasonable amount of unused credit
Not paying utility or cell phone accounts consistently and on time
Obtaining a high number of credit inquiries
Carrying many credit/store cards
Having a public record of bankruptcy
Defaulting on a loan
Having cards over the limit

11. Credit Reporting Agency (CRA)
Keeps a record of a consumer’s credit transactions and compiles credit reports
Acquires information from several different types of lending companies
Information on credit reports differ between each individual agency
Lenders may only report to one credit agency
Consumers should contact all agencies when checking their credit report

12. CRA’s continued The three main credit reporting agencies are: Equifax
(800)
Trans Union
(800)
Experian
(800)

13. Who Reports to CRA’s? Store accounts Credit card companies
Mortgage and other loan lenders
Financial institutions
Landlords
Courts
Utility accounts
Cellular phone companies
Delinquent accounts

14. Requesting Credit Reports
Consumers can request his/her credit report any time
Can obtain one free credit report annually from all three credit agencies
Additional copies can be purchased for no more than $9.50
Consumers should check credit report once a year for accuracy
Mistakes are common

15. Requesting continued
Any time a consumer requests credit from a business, they are able to review his/her credit report. This may include:
Insurance agencies
Current and potential credit companies
State/local child support agencies
Government agencies
Financial institutions inquiring for lines of credit
Landlords
Potential employers
Only with applicant’s written request

16. Mistakes in Credit Reports
More than 50% of the credit reports checked in a study contained errors
Consumer Reports (July 2000)
The two main errors commonly appearing in a consumer’s credit report are:
Mistaken identity – occurs when a lender reports a credit transaction and information is recorded on the wrong person’s credit report, usually of a similar name
Fraud

17. Fair Credit Reporting Act
Enacted to protect the consumer in 1971
Designed to promote accuracy and ensure privacy of information in credit reports
Consumers have the right:
To know the information in their credit report
To have errors corrected in their credit report

18. Correcting Errors on Credit Reports
Steps include:
Contact the particular credit bureau that has the error
CRA must report to the consumer within 30 days
If the CRA can’t verify the information, then it must be removed from the file or if in error it must be corrected
If a consumer disagrees with result of CRA investigation, they have the right to submit a 100 word explanation which stays in the consumer’s file
Negative information is usually removed from credit file after seven years, except bankruptcy which is removed after 10 years

19. Correcting Errors on Credit Report Cont.
According to the Better Business Bureau (BBB) and the Federal Trade Commission (FTC):
Consumers can do just as good of a job repairing their credit report errors as a fee based debt repair agency
Be cautious of debt repair agencies promising instant help because there is no immediate fix for poor credit
Be proactive and correspond to CRA’s if an error is found

20. Credit Scores
A mathematical tool created to help lender evaluate the risk associated with lending a customer money
Scores range from , with 950 being the best score
Not listed on a credit report
Each CRA has an independent scoring system based upon a standard percentage of five different categories
Consumer’s scores can differ between each CRA

21. Five Standard Categories of Scores
35%-Payment history
- Timely manner in which a consumer pays debt
30%-Outstanding debt
-Amount of debt currently held
15%-Credit history
-How long the consumer has held credit accounts and how often they are used
10%-Pursuit of new credit
-How much credit is acquired over the length of the consumer’s credit history
10%-Types of credit in use
-May include credit cards, gas cards, store cards or accounts, loans, etc.

22. Credit Scores continued
Other factors calculated into a credit score may include:
Length of time at current address
Current income
Financial information
Late payments
Amount of outstanding credit
Amount of credit in use
Length of time credit has been established

23. Financial Effect of Credit Scores
Interest rate of loans
High score – can insure a lower interest rate on credit
Low score– can cause a higher interest rate on credit
Ability to receive future loans/credit
Financial lending institutions have guidelines of what score will qualify for a loan
Reflection of risk of borrower to the lender
The lower the score, the higher the possibility the consumer pays bills late
Financial security for lifetime
Takes time to improve credit, which could take time from building financial security

24. Conclusion Build and maintain positive credit!
Check credit reports annually for errors!
Act financially responsible!