Who Uses Credit Reports?
If you think about it, just about every employer, lender, or service provider at some point in your life wants a look at your credit report.
Why? Because in one way or another it reflects upon the level of “risk” you represent. And by risk we mean to them, not you.
There are certain life events that “trigger” why a company/entity wants to pull your credit report. The most obvious include:
- Buying a home
- Buying a car
- Going to college
- Getting a new job
When you rent an apartment or turn on utilities, you become a potential risk to the apartment owner and the service providers. Without your credit history, they have no idea whether you will pay your bills on time – or at all. To prospective employers, your credit report can also represent the level of responsibility and commitment you have, especially as it pertains to personal debt.
Another big trigger is the application for credit itself. Whether you’re seeking new or additional credit cards, or perhaps a store “loan” to buy that big 70-inch screen HDTV, the first thing that happens is a request is made to the Credit Reporting Agencies (CRA) to pull your credit history.
So what’s the big deal?
Plenty, if your score is low. That’s because borrowers with low credit scores tend to get higher interest rates than borrowers with high scores. When you’re talking about revolving debt on credit cards, loans for cars, education and, especially mortgages, even one percentage point higher on your interest rate can make a huge difference in the monthly payment amount. Indeed, some experts say that, depending on your score, the difference can be as high as one-and-a-half points. That can translate into hundreds or thousands of dollars of additional interest paid over the life of your loans.
When lenders pull your credit report they often review for several factors including current outstanding debt, outstanding debt relative to total available debt, the length of your credit history, the pursuit of new credit, and if you’ve paid your debts on time or not. Obviously, having an accurate credit report is crucial.
If you have a low score due to mounting debt and missed payments, you are the only person on the planet able to “repair” your bad score (by methodically and consistently paying it down). However, there is help if the reason your score is low is because of inaccurate data.
Curing the bad credit data blues
We can’t stress enough the importance of carefully checking your credit reports each year. The CRAs are required by law to furnish one free report annually. Review everything. That includes such “minor” items as the way your name is spelled and previous addresses, as well as ensuring each and every account is yours and is reported accurately. Also, always make sure any accounts that have been closed are reported as such.
If you see anything wrong you can dispute errors yourself. While that is often a long and hard road, the process is doable over time. In lieu of that, turn to a reputable company to assist. If you do, be sure to work with one that does not charge large, upfront fees. Or, who accrues fees over many months because they are waiting to submit your disputes over time instead of all at once.
Instead, look for a partner who uses a pay-for-performance model: If it isn’t fixed, you don’t pay.