When you apply for a credit card or a loan to buy a house or car the potential lender will first review your credit score. If it is below a certain figure your application may be denied.
To a lender your credit score implies the degree of risk they must undertake when granting you credit. They believe that if your score is low, the likelihood of your defaulting on the loan is high and they will lose money. Therefore, they will deny your application.
They obtain the scores from credit bureaus or credit reporting agencies that maintain files containing consumers’ credit histories.
Unless you have always paid cash for everything you bought, never financed a car or a house and haven’t carried a credit card in your lifetime, you have a credit history.
There are three agencies that maintain files on people who have credit and that is just about everyone. These agencies are Equifax, TransUnion and Experian.
Those files contain a record of your payments to your lenders. If any payment was ever late, that is on your record. The agencies evaluate this and other information and assign you a credit score.
The lender uses that score not only to determine if they will grant you credit but also how much interest they will charge.
What determines your credit score?
Various factors affect your credit score such as the length of time you have had credit, the amount of outstanding debt you have, and whether you pay off your credit card balances in full or carry them over from month to month.
Those most important are whether you have had late payments and how many, whether you have ever declared bankruptcy and the amount of your outstanding debt.
Verifying your Credit Information
You need to check the information that is on file about you to be sure it is accurate. You also need to check all three agencies. You can obtain a free copy of your credit report from AnnualCreditReport.com. These agencies do not exchange information. They do make mistakes. Identity theft does occur and you can be a victim.
For all of these reasons you need to know what their files say about you.
Errors in your Credit History
There is hardly anyone who has not at some time or other made a late payment. People are hospitalized unexpectedly, storms delay mail, and payments go astray in the mail. Any one or all of these events occur in everyone’s life.
When this happens you call your lender and explain the circumstances. They are understanding and often reverse the late fee. So you feel that all is well.
But that may not be.
The moment that payment was late, your lender reported you to the credit bureau they deal with. The credit bureau posted it to your file. When you rectified the matter with your lender, they may have sent a follow up report but maybe not. If they did send a report, the credit bureau may have neglected to adjust your file. Or one agency corrected your information but the others did not.
Credit Agencies Do Err
These agencies are not infallible. Inaccurate information can be posted to your report. This is particularly true if you have a common name. For example, Jon Doe’s delinquent payment could easily be posted to John Doe’s account.
Suppose Jon Doe purchased a $40,000.00 automobile and has $30,000.00 outstanding. And then imagine Jon Doe has five delinquent payments. If this debt is added to John Doe’s record his amount owed may be too high for him to obtain credit. And the delinquencies will lower his score even more.
Credit reporting agencies maintain millions of files so it is very easy to err when inputting information. As easy as it is to error, the opposite is true in getting the error corrected. It is very difficult to have false information removed from your file or to have inaccurate information corrected. Although to err is human, most humans are reluctant to admit their errors.
Identity theft is becoming more common today. Technological advances have depersonalized business relationships.
To lower operational costs credit card companies have outsourced record keeping to offshore companies who employ their nationals at below subsistence wages. These employees may be barely literate and not even know male from female names.
Computers around the world store a wealth of personal information. Information technology security specialists strive to protect this information but hackers are adroit at accessing it.
The result is anyone can be the victim of identity theft and be totally unaware it. This is why government agencies recommend that everyone check their credit history at least once a year. And when they check, they may find some credit repair is needed.
The credit-reporting agency will not correct an error until directed to do so by the financial institution that submitted the information. So you will need to contact the financial institution in order to have them resubmit a correction. If the financial institution is not cooperative then you need to file a complaint.
There are approved credit restoration companies that specialize in helping consumers correct credit reports. The advantage of employing a credit repair company is access to the services of highly knowledgeable and experienced professionals who handle many complaints daily. They are alert to the latest scams and know the businesses with compliance issues.