Chapter Ten: Credit Reports
Credit reports are histories of how you manage credit. If you have never had a credit card or loan, your credit report likely does not list anything except your current address and notes about credit applications you may have already filled out.
Why should you care about what is on your credit report? There are a few very good reasons:
• The information on your credit report dictates what credit you are eligible for.
• Potential employers may review a credit report before offering you a job.
• Potential landlords may also review your credit report before allowing you to rent an apartment or a house.
It’s not just about getting credit. Your credit report and credit score paint a picture about how you manage your personal finances. If your credit report is full of negative items such as late payments or maxed-out credit limits, you may miss out on things beyond credit, such as getting a job or renting the place where you want to live.
What’s Listed?
Not everything regarding your financial standing is listed on your credit report. For example, you won’t find information on your credit report listing the banks accounts you have or how much money you make at your job. Instead, you will find information about the credit accounts, such as credit cards, car loans, and any other types of loans you have and your payment history on those accounts. Specifically, information regarding the length of time the account has been open, minimum monthly payment amount, balance, total credit limit, and whether the account has ever been 30 days (or longer) past due. Accounts you once had, but have closed, may be listed on the report, too, depending on how long ago they were closed.
Your current address is also listed, along with any other addresses you previously had when applying for credit. In addition to all this, any time you apply for a credit card or loan, a credit inquiry is placed on the report. This means a note is put on your credit report showing that a specific company looked at your credit report in order to determine whether to offer you credit. This means that if you apply for a credit card and are turned down, the fact that you applied will still be listed on your credit report under the inquiries list.
A good credit report has a few credit accounts listed with no late payments reported at all. It isn’t uncommon to have one or two late payments on your credit report, especially when you are fairly new to managing your own credit. Keep in mind, however, that every single late payment puts a blemish on your credit report, and your credit score will be lowered as a result. When you are struggling to establish credit and raise your score, every little negative item on your credit report can have a huge impact.
Credit Scores
You have undoubtedly heard the term “credit score” tossed around quite a bit. A credit score is a three-digit number that automatically tells lenders whether you are credit-worthy. In other words, the three-digit number sums up your chances of repaying a loan based on how you have managed your credit in the past. A credit score is based on the length of time you have had credit, how you manage the accounts you have, and what type of credit you have. You start out with no credit score, and the score changes according to what you do with your credit. It takes a while to have a good credit score, but trashing your credit score can happen pretty quickly if you don’t make your payments on time.
Did You Know?
You can review your credit report once a year at no charge at www.annualcreditreport.com.
A credit score ranges from 300-850. According to Experian, most people have credit scores somewhere around 600-750. Here is what the credit scale looks like:
|
Credit Score Range |
Credit Status |
|
800 – 850 |
Excellent Credit |
|
700 - 799 |
Very Good Credit |
|
600 – 699 |
Average Credit |
|
500 – 599 |
Fair Credit |
|
400 – 499 |
Poor Credit |
|
300 – 399 |
Horrible Credit |
Where is your credit score? If you don’t have any open credit account yet, or you have just recently opened your first account, you likely do not have a score at all. When ranking your credit worthiness, you don’t start at the bottom and work your way up. Instead, your credit score is generated once you have a credit history to analyze. So, if you have new credit account that you pay on time and don’t max out, you will have a better credit score than someone who has had credit for years but never pays on time.
Remember: The plus side of responsibly managing your finances, making payments on time, and using credit cards wisely is a good credit score. A good credit score is key to future success in many areas of your life. A good credit score allows you the ability to achieve basic things such as getting a job and buying a house.
Identity theft
As someone who has not yet established a lot of credit, you are at high risk for identity theft. Although this may seem backward, (wouldn’t people with a lot of credit cards be most at risk?) the truth is, you are an ideal victim. You have probably not yet established a credit history, so this makes it easy for an identity thief to open an account in your name and remain undiscovered until you either check your credit report or you begin getting bills in the mail from a company you never opened an account with.
When you review your credit report, you are making sure everything listed on the report is accurate and no one is using your identity to obtain credit. When you think about how many times a day people open new accounts, use credit cards, and close accounts, it shouldn’t come as shock that mistakes happen on credit reports because there is always a constant stream of information for credit reporting agencies to process. Errors can get fixed, but when the error is a result of identity theft, the process of removing false information from your credit report cleared is more difficult.
When your identity is stolen, lots of different problems can occur:
• The identity thief might open up new accounts in your name.
• The identity thief might use the accounts you already have.
• The identity thief might sell your information to other identity thieves.
Who steals identities?
According to the Federal Trade Commission, some people who experience identity theft had their information stolen by some they knew. Friends, family members, and coworkers have all been known to steal information in order to open credit accounts in someone else’s name, but more often it is a stranger who steals identities by getting access to personal information What information do they need to steal in order to open an account? Although application information requirements vary, here is the type of information an identity thief looks for:
• Full legal name
• Social security number
• Date of birth
• Account numbers
• Address
Information containing this information should be carefully safeguarded. Bills and bank statements should not be thrown away in the trash. Instead, you should shred them to make sure no one gets their hands on your information. It may seem weird to you, but some identity thieves will resort to digging through your trash to get your personal information.
Don’t leave your purse or wallet lying around where other people have access to it, and don’t reveal your account numbers and other personal information to people who don’t need to know it. For example, suppose you ride with a friend to get lunch, but stop at a drive-thru ATM first to get cash. Your friend is driving, so in order to make things easier, you give your ATM card to your friend and tell him or her your PIN. What you don’t realize is that your friend memorizes your PIN and later steals your ATM card. With your PIN and ATM card in hand, your “friend” can easily wipe out your account.
• Don’t talk to your bank over the phone with someone else listening nearby.
• Don’t use public computers to access your accounts.
• Don’t use an ATM or input your PIN for a purchase if someone is watching over your shoulder.
Identity thieves can be strangers, too. Never reveal personal information via e-mail, pop-up Web sites on the computer, or telephone to someone you don’t know. Someone may call you and claim to be a representative from your bank or credit card company, but unless you know this person personally, you just can’t be sure. It may actually be someone posing as a representative, trying to get your account information. Your best bet in this situation is to hang up and call your bank or credit card company directly. By doing this, you can ensure you aren’t giving your personal account information to someone who is trying to steal your identity.
You need to use caution with Web sites you aren’t familiar with, as well as with Web sites you visit regularly, but something doesn’t look quite right. Look for the padlock icon on the screen that tells you the site is secure, and if your computer features site advisor or site protection software, use it. Remember: Anyone with some Web knowledge can create a Web site that resembles a specific merchant’s site. If you input your personal account information into a site you aren’t familiar with, you may be sending the information right into the hands of an identity thief.
Help! Someone stole my identity!
What do you do if you find out someone has stolen your identity? How much work you have to do to repair any damage that has been done will depend on the extent of the identity theft, but there are some things you should always do if you think your identity has been stolen:
• File a police report. This is an important step because some lenders will require a copy of the police report in order to remove information from your credit report.
• Review your credit report. You should also file a fraud alert on your credit report, which is a statement that lets potential creditors know that you are a victim of identity theft. It will also stop new lenders from approving credit applications until they can verify your identity. Place a fraud alert on your credit report by contacting the credit bureaus either online or over the phone.
• Don’t give up! There may be a lot of work involved in getting your name cleared of false accounts and charges, but it will be worth it in the long run. Remember: You are not financially liable for accounts opened in your name fraudulently by someone else, but creditors will probably still pursue you until the matter is cleared up.