Credit Reporting Agencies-Evaluating Your Credibility

Using a credit card or applying for a loan implies that you must be having a credit history too. The credit reporting agencies or credit bureaus gather information about your debt account and record the same in what we call the credit report. From where do the credit bureaus get your information? Your information is provided by the banks, credit card companies, and mortgage companies. After careful evaluation of your credit history, your credit score is calculated.

Whether you are eligible for a loan or not depends entirely on your credit score and your credit report. A lender will call up the credit reporting agencies every time you ask for a loan.

There are 3 credit reporting agencies Experian, TransUnion and Equifax having the largest database of consumers in United States.

Role played by the credit bureaus Basically all of them perform the same function of collecting credit information and reporting the same. They usually gather credit information in the following ways.

1. Banking as well as non banking lending institutions sends up to date information about debtors to the credit reporting agencies every month. Information highlights the payment habits of the consumers and their outstanding balance.

2. Your personal data containing information about your income etc is also sent to the credit bureaus. The credit bureaus search for financial information of consumers to view records of foreclosures or bankruptcies if any.

Hard and Soft inquiries Lenders ask for credit reports from the credit bureaus when they have to determine the eligibility of a consumer. However, credit reporting agencies provide credit reports only when requested. Request is known as “inquiry”. Inquiries may be hard when the credit report is requested by lenders, credit card issuers or insurance companies. Soft inquiry is when the consumer himself makes requests for the credit reports. Inquiries by employers are also regarded as soft inquiries.

Information related to bankruptcies and foreclosures remain in the credit report for a period of 7 to 10 years. But positive information remains in the credit report longer.

The 3 credit reporting agencies, namely TransUnion, Experian and Equifax are 3 different companies and so the credit report prepared by them will differ from one another. It is always desirable to get hold of a copy of your credit report from all the 3 credit bureaus or at least 2 of them. You are entitled to receive a free copy of your credit report every year from the 3 credit bureaus.

Fair Credit Reporting Act Earlier credit reporting was a confidential matter and was not divulged to consumers. Consumers who were denied credit kept wondering as to what went wrong. The Fair Credit Reporting Act was enacted in 1971 which allowed consumers the right to their own credit information. The Act was enacted to safeguard the rights of the consumers.

Fair and Accurate Credit Transactions Act or FACTA (2003) The FACTA gives the right to citizens of United States to request for a free copy of their credit report. The credit report can be ordered over telephone, mail or online.