Doctors Have X-rays, Lenders Have FICO^®

What information is on a consumer credit report?
The typical consumer credit report includes four types of information:

1. Personal information: your name, spouse's name, current and previous addresses, Social Security number, year of birth and current and previous employers. This information is gathered from credit applications, so its accuracy depends on filling out the forms completely and consistently each time you apply for credit.
2. Credit information: specific information about each account such as the credit limit or loan amount, balance, monthly payment and payment pattern during the past several years. This information comes from companies that do business with you.
3. Public information: federal district bankruptcy records; state and county court records, tax liens and monetary judgments; and, in some states, overdue child support.
4. Inquiries: the names of those who obtained a copy of your credit report for any reason. This information comes from the credit-reporting agency, and it remains on record for up to two years, consistent with federal law.

How long does information stay on a consumer credit report?
Federal law specifies how long negative information may remain on your credit report. To prevent past errors from haunting you forever, most negative information must be erased after seven years. This includes late payments, accounts that the credit grantor turned over to a collection agency and judgments filed against you in court--even if you later paid the account in full. Credit reporting agencies use the date of original delinquency or, in the case of public records, the date of filing to determine when negative information is deleted. Positive information remains on your report indefinitely.

The length of time a bankruptcy remains on your credit report depends upon which type of bankruptcy you file. Chapters 7, 11 and 12 remain for 10 years. A Chapter 13 bankruptcy (in which you repay part or all of your debts under a court-approved payment plan) remains on your credit report seven years.

Inquiries made on your credit history remain on your credit report between one and two years, depending on the type of inquiry.

How consumer credit reports are used?
Federal law specifies who may obtain a copy of your credit report and how it may be used. Specifically, you may request a copy at any time, but no one else may legally review your report unless they do so in connection with one of the following:

• Your application for a government license
• A credit transaction or other legitimate business need
• Employment purposes such as hiring or promoting
• Underwriting insurance
• A court order or federal grand jury subpoena
• Your written instructions

What do lenders consider before granting you credit?
Though all credit grantors are different, in general their decisions boil down to a single issue: If they lend you money, send you a credit card, or give you goods or services, will you pay them back? To help them predict the answer to this question, lenders consider:
 

• How much money you make
• How long you've lived where you live now
• How much your home, car or other assets are worth
• How much money you have in the bank
• Whether you pay your bills on time
• How long you've worked for the same company
• How much money you owe to others

These factors fit into three categories, which are known as the "three C's of consumer credit."

Character: Your length of residency and employment give credit grantors an indication of your personal character. They get this information from your credit application. Lenders evaluate your financial character by reviewing your existing credit relationships: credit cards, bank loans, mortgages, etc.
Capacity: Your living expenses, open credit limits, current debts and other payments give lenders a sense of how much debt you can realistically pay given your income.
Collateral/capital: Whether the loan is secured by a down payment or asset--and how much that down payment or asset is worth --helps lenders determine the terms of the credit or loan they extend to you.

What should I do if I believe I have been a victim of credit fraud?

What is in my credit file that may keep me from obtaining credit?
Each credit grantor has established criteria for making credit decisions. Your credit may appear to be perfect, but having too much credit or too many outstanding balances are examples of why your request for credit might be declined. Sometimes the decision is not even based directly on the credit file. For instance, you may not have been at your current residence or in your present job long enough. If you have any questions about why you were not approved for credit, you may want to contact the credit grantor who turned you down and ask them for an explanation.