A credit report contains information on residence, how bills are paid, and whether there have been any legal actions such as arrests or bankruptcy filings. Credit information is often reported by banks, credit card companies, collection agencies, or a court clerk. That information is reported to consumer credit companies Equifax, Experian, and Trans Union.
A credit score is a number based on a consumer's credit history and current credit worthiness. The number is the product of a formula developed by a consumer credit reporting firm or other company.
Credit scores are not only used to make lending decisions, but also to predict the likelihood that someone might file an insurance claim. Many insurance companies use credit scores, in part, to determine the level of policyholder risk and to set premium rates or decide whether to issue a policy. Some employers will check your credit score before they hire you and landlords use this information when deciding to rent property.
Credit scores are affected by bill paying history, number and type of open accounts, outstanding debt, late payments, collection actions, and other credit experience.
Monitoring your credit report is important because so many decisions are now based on how you manage your finances To make sure that credit scores are based on accurate information, you should consider reviewing your credit report from each of the three major consumer credit reporting bureaus each year.
Make sure it is accurate and contact the credit bureau if you find an error or mistake. If you report an error, the credit bureau must investigate and respond within 30 days.
Identity theft is an increasing problem make sure that someone has not opened an account or obtained credit in your name. (see our information on identity theft here)
Consumers do not have to pay a fee to obtain their credit report. Each of the nationwide consumer credit reporting companies is required to provide a free credit report, upon request, once every 12 months. The web site is www.annualcreditreport.com . Remember this is a free service - don't be fooled by an unsolicited email or advertisement that tries to charge a fee for a credit report.
Because nationwide consumer reporting companies get their information from different sources, the information in a report from one company may not reflect all, or the same, information in the reports from the other two companies. That's not to say that the information in any of the reports is necessarily inaccurate; it just may be different.
There is an option to order one, two, or all three reports at the same time, or stagger the requests. The choice belongs to the consumer. Some financial advisors say staggering requests during a 12-month period may be a good way to keep an eye on the accuracy and completeness of the information in your reports.
More information is available from the Federal Trade Commission.