Business and Financial News

To secure a loan, whether to buy a home, car, boat, motorcycle, etc, or a personal loan, business loan, home equity loan, etc, or to secure credit such as a credit card, the first thing the creditor is going to do is pull a current copy of your credit report.  Based on the three numbers given to you by the credit scoring system being used, which is usually FICO, the request would be approved or denied.  To creditors, your credit report provides an overview of how you manage finances.  While this is true to some degree, the problem is that the three-digit rating does not account for life tragedies that have nothing to do with mismanagement of finances.

Regardless, the credit report is going to be a key factor to creditors.  In addition, both insurance companies and employers are allowed by law under the Fair Credit Act to pull a copy of your credit report without your knowledge or approval any time you try to get an insurance policy or hired on for a job.  While some insurance companies and employers do not depend on a person’s credit report when making decisions, most do.  The best thing you can do is understand the type of information being reported on the credit report and then order your annual free copy to make necessary corrections.

Keep in mind that each of the three credit bureaus to where information is reported, which includes Equifax, Experian, and TransUnion, has different information.  The reason is that creditors may report to just one bureau or all three.  For this reason, information would vary, as well as the credit score.

Now, if FICO were the credit reporting system used to determine the credit score, numbers from one credit bureau to another would change very little, if at all.  On the other hand, if another popular credit scoring system called VantageScore were used, credit scores would be different.  Remember, more creditors use FICO but with the launch of VantageScore 2.0, it has become another important tool.

It is also important to know that while information on your credit report would come from existing creditors, as well as creditors to which you applied for a loan or credit, whether being approved or denied, the information also comes from companies that actually gather and sell credit information.  These companies are called “consumer reporting agencies” or CRAs, which store vast quantities of information in a database.

In exchange for giving the information to credit bureaus, these companies make money.  The problem is that without the information coming directly from the creditor, this information could be outdated or simply wrong.  For this reason, everyone, even people with excellent credit should review the free annual credit report.  Considering that 80% of consumers have at least one mistake listed on their credit report, going through the process of ordering and making corrections to your report is critical.

Regarding whether FICO or VantageScore 2.0 was used to generate the credit score, the following criteria would be used:

•    Identifying Information – This would include your full, legal name, any known aliases to include married names and hyphenated names, current and previous addresses, social security number, day, month, and year of birth, current and past employees, and in some instances, the same information on your spouse.

•    Credit Information – Any open or closed accounts from banks, credit card companies, retail stores, utility companies, and other lenders would provide information pertaining to payment history, available credit, number of credit cards, length of time being a debtor, established credit lines, date accounts were opened, owing balances, date accounts were closed, payment patterns, collection activity, names of any co-signors, etc.  In addition, the name, address, and phone numbers of each creditor would be listed.

•    Inquiry Information – Inquiries would also be reported, which would belong to any requests you made to lenders.  In other words, if you requested a loan or credit card, an inquiry would be reported.

•    Public Record Information – Records from the state and/or county would be on your credit report as well.  This would include bankruptcies, tax liens, and judgments.

Keep in mind that all three credit bureaus can only provide certain information to creditors, insurance companies, landlords, and employers making a request of your credit report.  This would include creditors considering giving you a loan or credit, employers considering you as a potential hire, insurance companies considering selling you a new policy or extending an existing policy, government agencies looking at government benefits or financial status, and any other person or company needing information for legitimate business purposes.

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