How Credit Reports Work

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Whenever you apply for any type of credit or financing, a credit report is pulled from at least one of the three major credit bureaus. While there are hundreds of smaller credit bureaus around the country, virtually every credit bureau is affiliated with either Experian, Trans Union, or Equifax.

These credit bureaus collect and maintain information on the vast majority of Americans, but they are not affiliated with the government in any way. The credit bureaus are for-profit corporations and they sell your personal information for money.

The credit bureaus receive your personal information through the same lenders who grant you credit. They have agreements with each of these credit grantors that require the credit grantor to inform the credit bureaus of everything that occurs in your relationship with the credit grantor. If you make a payment late, the negative credit listing is quickly reported to at least one of the three major credit bureaus and is added to your credit history. Credit reports are not just a record of how you are currently managing your credit accounts. Credit reports are histories of everything you are doing with your credit now, and everything you have done in the past.

The credit bureaus collect this information, list it on your credit report, then sell it to other credit grantors who wish to see your credit history before they decide to lend you money. The credit grantors who review your credit are especially interested in any negative credit. If you have shown any tendency to pay late, or to disregard your financial commitments in the past, then the creditors' computers will typically reject your application.

Just like when you were in grade school, your credit report is your financial report card to the world.

Merchant Trade Lines
These include all regular credit lines such as department store cards, auto loans, mortgages, and credit cards. If there is any history of late payment, or if the trade line was included in bankruptcy, charged off, or put into repossession, the listing will be considered negative by all credit grantors.

Collection Accounts
When an account is referred to collections because of delinquency or because of a bad check, this appears on the credit report as a collection account. Collection accounts can appear as paid or unpaid accounts. Any type of collection account, whether paid or not, is considered very negative by all credit grantors.

Court Records
Court records include bankruptcies, judgments, liens, divorce, satisfied judgments, and satisfied liens. All court records, including satisfactions, are considered negative by all credit grantors.

Inquiries
Every time a potential credit grantor looks at your credit file, a credit inquiry appears on at least one of your credit bureau reports. If the number of inquiries is very few over the last two years, then there may be no negative effect on your credit worthiness. However, if there are many recent inquiries showing on your credit report, credit grantors may become nervous and deny you credit.

With the passing of each year, your credit report is used more and more often as a yard stick to measure your character. Prospective creditors will always review at least one of your credit reports before granting you credit. Today it is increasingly common for insurance companies to review your credit before extending auto or health insurance. Many employers now check credit before they consider you for a position. If you rent, you may have already been through a credit check to determine your worthiness as a renter.

The Fair Credit Reporting Act (FCRA) requires that most negative credit items be deleted from your credit bureau file in no more than seven years, except for bankruptcy which can be reported for up to ten years. These are the time limits for reporting negative credit. The creditor or the credit bureau can choose to have the negative credit information deleted whenever they please. Inquiries may remain on the credit report for up to two years.

Under the new Fair Credit Reporting Act, no collection or charge off may remain on the credit report for more than seven and one half years from the first late payment that initiated the collection or charge off status.

Most credit grantors are not allowed by the credit bureaus to show you your own credit report. But you can purchase your credit report from the credit bureau for a fee or you may buy it on line through a variety of services.

If you order your credit report from the credit bureaus themselves, you may find that you cannot read it because the information is listed in an unfamiliar code. Trans Union and Equifax credit reports are very difficult to interpret and understand. Experian credit reports, however, are relatively easy for most people to read. The Qspace report is one of the most easy to read.

As you may have already experienced, even one small late pay listing may result in credit denials. It is a myth that a large amount of positive credit can outweigh some negative credit. Any negative credit whatsoever can become a substantial credit obstacle.

Different kinds of creditors respond differently to bad credit. It is safe to say that your bankruptcy will continue to make it more difficult to get credit for seven years after your last late payment assuming you don't repair your credit.

Within two years after the last negative listing, a consumer can usually acquire "sub-A" financing for a home (assuming all accounts are paid.) Within three years, the consumer should be able to get normal, "A," mortgage rates even without credit repair (that assumes that the person has been current on bills all the while.)

Auto financing is a little less forgiving. You may find yourself paying higher or slightly higher interest rates on cars until seven years after the negative listings (without credit repair), when the listings are deleted from the credit report. You can get auto financing with bad credit in most areas, but the rates are going to be astronomical. Yet, time heals all wounds, and you should be doing better within three years of the negative listing.

Credit cards and banks are the least forgiving of all. Many standard rate credit cards will not even consider an application from a person with a any negative credit on their credit report. In these days, though, there are credit cards that cater to every credit situation; even someone who discharged their bankruptcy the day before applying. Most of these cards charge very high interest or unusual up front fees or security deposits. It is common for one of these cards to charge you an "application" fee equal to the limit on the card. After the bankrupcty ages, prospects become better, but they will remain sub-standard until the negative listins fall off the credit report. With that said, it shouldn¹t be forgotten that bad credit can usually be repaired (after a significant amount of effort and follow-through.) Even bankruptcy can be repaired after enough effort and time are dedicated to the task. Click Here to Learn About Credit Repair.