Strangers Are Watching
Strangers are watching you. No need to panic. But it’s true. Perhaps without you knowing it, complete strangers are watching how you use your credit. And, they tell others about the credit decisions you make.
Sound a little scary? Let’s back up and explain. Getting credit can be great. It allows you to use someone else’s money to buy something you can use today and pay for it later. People use credit to purchase homes, cars, appliances and furniture. Other people are willing to lend money. Lenders – - banks and credit card providers – - are not charities. They are businesses. They expect to be paid back with interest.
When credit works as expected, both sides benefit. When credit works not as expected, both sides are harmed. Your credit rating suffers. You pay more for future loans. Banks earn less money and sometimes wind up with property they don’t want.
Establishing a Credit History
The first step to establishing good credit is building a good credit history. Your credit history is described in your credit reports. A credit report is a record of an individual’s personal credit history. It is one indicator of whether an individual will repay borrowed money as agreed. A credit report tells in detail how much you have borrowed, from whom and whether you paid your bills on time.
Three main agencies issue credit reports. They are:
- Equifax http://www.equifax.com/home/
- Experian http://www.experian.com/
- Trans Union http://www.transunion.com/
Companies like these collect information on millions of credit users. They obtain credit information from stores, credit-card companies, banks, mortgage companies and medical providers.
Credit reports include four types of information:
- Identifying Information: This includes your Social Security number, date of birth, address and so forth.
- Credit History: Your credit accounts with banks, credit-card companies, department stores, oil companies and so forth
- Inquires: A list of the agencies that have inquired about your credit.
- Public Record Information: A list of any collections accounts, bankruptcies, legal announcements of a failure to pay taxes and so forth.
What Is Not on Your Credit Report?
Your credit report is not a complete record of your financial history. It does not include your income, checking and savings account balances or purchases made with cash. Transactions made with pay-day loan stores and rent-to-own stores, for example, are not filed in your credit report. Other personal information like your race, religion, medical history and driving record are not included on your credit report.
Get a Free Credit Report
Federal law allows you to have a free credit report from each of the three credit bureaus once a year. That means you can get three credit reports annually. You can obtain a free copy of your credit report by visiting AnnualCreditReport.com.
Two Tips Regarding Monitoring Your Credit
- You can check your reports every four months and basically monitor your credit year-round – - all at no charge to you. Many financial advisers recommend that you check your credit report once a year to make sure that the information is correct and to protect your identify.
- Prepare before you go online and request your credit report. You will be asked to provide information about current or past creditors as identifying information. It’s a good idea to have your financial records nearby when you go online.