Many people put their credit reports in the same category as IQ results, SAT scores, school report cards, job reviews, and cholesterol readings — in other words, information that doesn’t seem all that relevant to their day-to-day life. They figure that if they’re looking to buy a home, they need to know what shape their credit is in. But for most times, knowing about their credit history just isn’t that important. Right? Unfortunately, these people couldn’t be more wrong.
• Let’s say you signed up for a dating service. Now, what if all the information available to your prospective dates is given to them by people you’ve dated in the past? What if the quality of the dates you get in the future are directly tied to what all the people you’ve dumped (or been dumped by) say about you? Starting to sweat a little?
• Let’s say you’re applying for a job. Your salary, job title, and the size of your office will be tied directly to what’s on your résumé. But what if you didn’t write your résumé — your past employers did, and what if they’ve mixed your personnel file with the file of that person who was fired for sexual harassment? Can you imagine walking into that job interview without any idea what your former boss may have reported or whether it was correct?
Meeting your life partner, landing a great job — these situations are ones in which you have a great deal of personal investment and interest in a successful outcome. Kind of like getting a good mortgage rate so you can afford that dream home.
I’m not saying you’re guaranteed to like the outcome of the date or the job interview — but at least you know it’s based on information you’re privy to. Likewise with your credit report. You can’t rewrite your own credit history, but you can be knowledgeable about what a credit report is and how much weight it carries as you try to negotiate your way through the financial universe. You can be savvy to situations that could cost you thousands of dollars more or deny you opportunities. And you can catch inaccuracies on your report (a common situation) and correct them.
Your credit report doesn’t come into play just when you want to borrow money. A bad credit report may affect what you pay for insurance, whether you can rent the apartment of your choice, or whether you’ll be hired for certain jobs. Heck, a particularly finance-conscious romantic prospect might even nix you for a bad credit history! It’s a fact, Jack: Your credit score can cost you thousands of dollars and deny you opportunities you never even knew you missed. Clearly, what you don’t know can hurt you.
There is no excuse for not knowing what’s in your credit report. You should have a current copy of your credit report from each of the three credit bureaus (Equifax, Experian, and TransUnion). And don’t even think about saying you can’t afford it, because you can now request your credit report from each credit bureau once a year for free.
So, what’s in your report? Is the information correct — or even yours? And if not, what can you do to fix it? Settle in for some facts that will open your eyes and save you money, time, and frustration.
In its most basic sense, your credit report is your financial life history of borrowing money. This information is gathered, managed, maintained, and shared by a credit-reporting bureau or agency. Trust me: You don’t have to lift a finger to create it or disseminate it. There are actually as many as 20 credit-reporting bureaus; most are specialty reporting agencies. The following three are considered the biggies:
• Equifax (www.equifax.com
• Experian (www.experian.com
• TransUnion (www.transunion.com
Every day, businesses rely on the information in your credit report to help them decide whether to lend you money and at what price (otherwise known as the interest rate and loan terms). But because the information in your credit report can be sliced and diced many ways, your report becomes an important tool that serves different purposes for different people:
• For a lender, your credit report is a tool to determine how likely you are to repay the loan, and it’s an indicator of how much interest and what fees to charge you based on the risk profile you represent.
• For an insurance company, your credit report is a tool to predict how likely you are to have an accident or file a claim.
• For an employer, your credit report is a tool to predict whether you’ll be a trustworthy employee.
• For a landlord, your credit report is a tool to determine whether you’re likely to pay the rent on time.
• For you, your credit report is a tool to help you understand how you’ve handled your finances in the past and how you’re likely to handle them in the future.