What is a Credit Report?
A credit report is a file that contains your name, social security number, date or birth, current and past employment, and credit accounts such as credit cards, loans, and mortgages. It does not contain personal information such as your sex, religion, ethnicity, or criminal record.
This information is provided from various sources where you have credit with them, and is compiled by one of three major credit reporting agencies. These agencies are Equifax, Experian, and Transunion. When you apply for a loan, a credit card, a mortgage or move into an apartment, the creditor will buy your credit report to see if you are “creditworthy” (basically, does it look like you will pay them the loan or rent?) This is the O.A.C. (On Approved Credit) you often see in the fine print of sales where you pay later.
What is Credit?
Simply put, credit is “buy now, pay later.” Most people can’t buy a car or a house with huge bales of cash. Instead, you borrow money from a bank or other financial institution in the form of a loan or a mortgage, promising to pay it off in a set number of years. You are often charged service fees or interest in exchange for enjoying the purchase now. However, lenders need reassurance before they hand over several thousand dollars to a complete stranger. This is where your credit report comes into play, and they will make their decision based on your credit score.
Your Credit Score
Your credit score is based on your history of paying bills on time, the number of accounts you have, any late payments, collection actions, and your current debt load. Using this information, a statistical program compares your information to consumers with similar profiles and spending habits. The system awards points for timely repayments of loans. The total number of points is your credit score. This helps predict how creditworthy you are, that is, how likely are to repay a loan. Your history of loans, repayments, and other financial actions are kept between seven and eleven years.
The higher your score, the more likely you are to receive the loan or mortgage, and the lower your interest rate, because you are perceived as less of a financial risk to the lender. A high credit score can potentially save you thousands of dollars on interest charges.
Identity Theft
A person who has stolen your identity through your credit card number, address, bank account information, social security number or anything else that identifies who you are, can take out loans, open and overdraw accounts, and apply for credit cards. All this information is recorded on your credit report. By the time you find out that you’re a victim, your credit score has most likely been ruined, with creditors you’ve never met demanding payments for purchases and loans you did not authorize. It could take months to sort everything out, with an average of $600 out of your pocket to return your credit to before you became a victim.
Protection from Identity Theft
Fortunately, it doesn’t have to be like this. The government allows you to view your credit report free once a year, so you can check for any unauthorized activity. However, it only takes a week or two for a thief to assume and profit from your identity. A credit monitoring service will check for any inconsistencies or unauthorized activity in your report and alert you. An identity theft protection agency will do all that and block the activity, protect and clean everything up for you, and reimberse you any losses you incurred.
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