Lesson D: Understanding Credit Reports

Personal Information
Your name, address, social security number, date of birth, employment and salary information. These factors are not used in scoring.

Trade Lines
These are your credit accounts. Creditors report each account that has been established with them. The type of account, date account was opened, credit limit or loan amount, balance and payment history are reported in this section.

Inquiries
This section lists any company that has accessed your credit report within the last two years. Both voluntary (initiated by you) and involuntary
(requested by a third party).

Public Record and Collections Items
Information that’s collected from state and county courts, collections accounts, bankruptcies, foreclosures, wage attachments, liens and judgments are also included in this section.

Who Can See a Credit Report?
Financial institutions can view your report when you apply for a loan. Landlords can access it when you apply for a lease. Employers may use it when they are considering you for employment or a promotion. The Fair Credit Reporting act limits who can view your report and for what reasons. View the act at www.ftc.gov.

How Do I Read My Credit Report?
The different credit bureaus' reports look different. You will have a key or explanation with the report. It's important to study it and see what is in the report. You will want to take special notice of the inquiries, too many of these can work against you. Be sure that each inquiry is authorized. Since the different Credit Bureaus use special codes, its best to visit each site individually and learn what the codes mean.

How is Credit Gauged?
It depends on the type of loan a consumer is seeking. For example, a mortgage broker will give more weight to different credit factors than a credit card issuer.

Mortgages: By some lenders standards, borrowers with FICO scores above 660 are likely to have an "acceptable" credit reputation and their loan files need only a basic review. The credit risk is "uncertain" for those with scores between 620 and 660, with a thorough review of the borrower's entire credit history. A score below 620 indicates "high risk" with an unacceptable credit reputation that could make traditional financing difficult to obtain.

Credit Cards: Credit Card lenders place additional weight on credit card-related information, such as how many times a person missed revolving credit payments.

Auto Lenders: Auto scores, on the other hand, focus on "deal characteristics" in much the same way the mortgage scores do. Lenders generally take into account factors such as the amount a customer puts down, as well as a borrower's debt-to-income ratio, length of time at one job and the like. As with credit card lending, information about past performance on similar types of loans is weighted, so a previously missed car payment might be more important than an overdue Visa bill.

Exercise

Quiz

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