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About Credit

What is Credit?

Credit is the ability to borrow money or access goods or services with the understanding that you’ll pay later. Lenders, merchants and service providers (known collectively as creditors) grant credit based on their confidence you can be trusted to pay back what you borrowed, along with any finance charges that may apply. To the extent that creditors consider you worthy of their trust, you are said to be creditworthy, or to have “good credit.”

How Credit Works:

In centuries past, creditors might have gauged your creditworthiness by reputation alone. Obviously, this method was subjective and prone to error, manipulation and bias. These days, creditors prefer a more objective approach. In the U.S., typically they look to your credit history—your record of borrowing and repaying funds—as a first step in determining whether to issue you credit.

Your credit history is summarized in files known as credit reports, compiled by three independent credit bureaus—Experian, TransUnion and Equifax. Banks, credit unions, credit card issuers and other creditors voluntarily report your borrowing and repayment information to the credit bureaus.

Information in your credit report includes:

  • The number of credit card accounts you have, their borrowing limits and current outstanding balances
  • The amounts of any loans you’ve taken out and how much of them you’ve paid back
  • Whether your monthly payments for your accounts were made on time, late or missed altogether
  • More severe financial setbacks such as mortgage foreclosures, car repossessions and bankruptcies

To help narrow their lending decisions, creditors often use a three-digit number known as a credit score as the first step in deciding whether or not to issue credit. Your credit score distills the information on your credit reports to something that’s easy to interpret, and does so in a fair way that minimizes the possibility of bias.

Sophisticated systems known as credit scoring models calculate your credit score by performing complex statistical analysis on the contents of your credit file. Different models, such as the FICO® Score*  and VantageScore®, calculate scores differently, but all assign higher scores to individuals whose credit histories make them statistically more creditworthy than those with lower scores.

What Are the Types of Credit?

There are four types of credit:

  • Revolving credit: With revolving credit, you are given a maximum borrowing limit, and you can make charges up to that limit. You must make a minimum your outstanding charges, up to the full amount. If you make a partial payment, you will carry forward the remainder of your balance, or revolve the debt. Most credit cards count as revolving credit.
  • Charge cards: Once commonly issued by retailers for use exclusively in their establishment, charge cards are relatively rare these days. Charge cards are used in much the same way as credit cards, but they don’t permit you to carry a balance: You must pay all charges in full every month.
  • Service credit: Your contracts with service providers such as gas and electric utilities, cable and internet providers; cellular phone companies; and gyms are all credit agreements: These companies provide their services to you each month with the understanding that you will pay for them after the fact. Modern credit scoring systems, including the most recent versions of the FICO®Score and VantageScore, can factor your service payment history into your credit scores, but those payments are not always reported to the credit bureaus. The Experian Boostprogram enables you to share utility and cellphone payment records so they can be considered in credit scores based on Experian data.
  • Installment credit: Installment credit is a loan for a specific sum of money you agree to repay, plus interest and fees, in a series of equal monthly payments (installments) over a set period of time. Student loans, car loans and mortgages are all examples of installment credit.

Credit Reports

Credit reports list your bill payment history, loans, current debt, and other financial information. They show where you work and live and whether you’ve been sued, arrested, or filed for bankruptcy.

Credit reports help lenders decide if they’ll give you credit or approve a loan. The reports also help determine what interest rate they will charge you. Employers, insurers, and rental property owners may also look at your credit report. You won’t know which credit report a creditor or employer will use to  check your credit.

Credit reporting agencies (CRAs) collect and maintain information for your credit reports. Each CRA manages its own records and might not have information about all your accounts. Even though there are differences between their reports, no agency is more important than the others. And the information each agency has must be accurate.

It’s important to check your credit reports regularly to make sure that your personal and financial information is accurate. It also helps to make sure nobody’s opened fraudulent accounts in your name. If you find errors on your credit report, take steps to have them corrected.

Free Credit Reports                             

You are entitled to a free credit report from each of the three credit reporting agencies (Equifax, Experian, and TransUnion) once every 12 months. You can request all three reports at once, or space them out throughout the year. Learn about other situations when you can request a free credit report.

Request Your Free Credit Report: 

Online: Visit AnnualCreditReport.com

By Phone: Call 1-877-322-8228. For TTY service, call 711 and ask the relay operator for 1-800-821-7232.

By Mail: Complete the Annual Credit Report Request Form (PDF, Download Adobe Reader) and mail it to:

Annual Credit Report Request Service
PO Box 105281
Atlanta, GA 30348-5281

 

 

 

 

If Your Request for a Free Credit Report is Denied: 

Contact the CRA directly to try to resolve the issue. The CRA should tell you the reason they denied your request and explain what to do next. Often, you will only need to provide information that was missing or incorrect on your application for a free credit report.

If you can’t resolve your dispute with the CRA, contact the Consumer Financial Protection Bureau (CFPB).

Credit Scores

credit score is a number that rates your credit risk. It can help creditors determine whether to give you credit, decide the terms they offer, or the interest rate you pay. Having a high score can benefit you in many ways. It can make it easier for you to get a loan, rent an apartment, or lower your insurance rate.

The information in your credit report is used to calculate your credit score. It’s based on your:

  • Payment history
  • Outstanding balances
  • Length of credit history
  • Applications for new credit accounts
  • Types of credit accounts (mortgages, car loans, credit cards)

It’s important to make sure your credit report is accurate, so your credit score can be too. You can have multiple credit scores. They’re not calculated by the same credit reporting agencies that maintain your credit reports.  Instead, they’re created by different companies or lenders that use their own credit scoring system.

Your free annual credit report does not include your credit score, but you can get your credit score from several sources. Your credit card company may give it to you for free. You could also buy it from one of the three major credit reporting agencies. When you receive your score, you often get information on how you can improve it.

Contact each credit reporting agency to place a freeze on your credit report. Each agency accepts freeze requests online, by phone, or by postal mail.

Experian
Online: Experian Freeze Center
Phone: 1-888-397-3742
By mail, write to:
Experian Security Freeze
PO Box 9554
Allen, TX 75013 

Equifax
Online: Equifax Credit Report Services
Phone: 1-800-685-1111
By mail, write to:
Equifax Information Services LLC
PO Box 105788
Atlanta, GA 30348-5788

TransUnion
Online: TransUnion Credit Freezes
Phone: 1-888-909-8872
By mail, write to:
TransUnion LLC
PO Box 2000
Chester, PA 19016

Innovis
Online: Innovis Freeze Options
Phone: 1-800-540-2505
By mail, write to:
Innovis Consumer Assistance
PO Box 26
Pittsburgh, PA 15230-0026

How to Fix My Credit

 

Errors on Your Credit Report

If you find errors on your credit report, write a letter disputing the error and  include any supporting documentation. Then, send it to:

  • The credit reporting agency (EquifaxExperian, or TransUnion)
  • The Information provider that gave the inaccurate information to the credit reporting agency. These providers include banks and credit card companies.

Find a sample dispute letter and get detailed instructions on how to report errors.

The credit reporting agency (CRA) and the information provider are liable for correcting your credit report. This includes any inaccuracies or incomplete information. The responsibility to fix any errors falls under the Fair Credit Reporting Act.

If your written dispute does not get the error fixed, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

 

 

Negative Information in a Credit Report

Negative information in a credit report can include public records–tax liens, judgments, bankruptcies–that provide insight into your financial status and obligations. A credit reporting company generally can report most negative information for seven years.

Information about a lawsuit or a judgment against you can be reported for seven years or until the statute of limitations runs out, whichever is longer. Bankruptcies can be kept on your report for up to 10 years, and unpaid tax liens for 15 years.

 

 

 

 

Fixing Errors in a Credit Report

Anyone who denies you credit, housing, insurance, or a job because of a credit report must give you the name, address, and telephone number of the credit reporting agency (CRA) that provided the report. Under the Fair Credit Reporting Act (FCRA), you have the right to request a free report within 60 days if a company denies you credit based on the report.

You can get your credit report fixed if it contains inaccurate or incomplete information:

  • Contact both the credit reporting agency and the company that provided the information to the CRA.
  • Tell the CRA, in writing, what information you believe is inaccurate. Keep a copy of all correspondence.

Some companies may promise to repair or fix your credit for an upfront fee–but there is no way to remove negative information in your credit report if it is accurate.

File a Complaint

If you have a problem with credit reporting, you can file a complaint with the Consumer Financial Protection Bureau (CFPB).

Credit Freeze

Placing a credit freeze allows you to restrict access to your credit report. This is important after a data breach or identity theft when someone could use your personal information to apply for new credit accounts. Most creditors look at your credit report before opening a new account. But if you’ve frozen your credit report, creditors can’t access it, and probably won’t approve fraudulent applications.

You have the right to place or lift a credit freeze for free. You can place a freeze on your own credit files and on those of your children age 16 or younger.

Lift a Credit Freeze

If you want lenders and other companies to be able to access your credit files again, you will need to lift your credit freeze permanently or temporarily. Contact each credit reporting agency. Some require you to use a PIN or password to lift your credit freeze. You can lift your credit freeze as often as you need to, without penalties.

It takes one hour for a lift request to take effect if you place it online or by phone. It can take three business days if you request the lift by mail.

Medical History Report

A medical history report is a summary of your medical conditions. Insurance companies use these reports to decide if they will offer you insurance. You have the right to get a copy of your report from MIB, the company that manages and owns the reporting database.

Request Your Free Medical History Report

You have the right to get one free copy of your medical history report, also known as your MIB consumer file, each year. You can request a copy for:

  • Yourself
  • Your minor child
  • Someone else, as a legal guardian
  • Someone else, as an agent under power of attorney

You can request a medical history report online from MIB or by phone at 1-866-692-6901.

Not everyone has a medical history report. Even if you currently have an insurance plan, you won’t have a report if:

  • You haven’t applied for insurance within the last seven years
  • Your insurance policy is through a group or employer policy
  • The insurance company isn’t a member of MIB
  • You didn’t give an insurer permission to submit your medical reports to MIB

Medical ID Reports and Scams

Use your medical history report to detect if you are a victim of medical ID theft. You may be a victim if there is a report in your name, but you haven’t applied for insurance in the last seven years. Another sign of medical ID theft is if your report includes illnesses that you don’t have.

 

 

File a Dispute

Review your report to verify that it only includes medical conditions that you have. Request a re-investigation if your report is incorrect. Email your dispute to infoline@mib.com or write:

MIB Disclosure Office

50 Braintree Hill Park, Suite 400

Braintree, MA 02184.

 

Report unresolved disputes to the Consumer Financial Protection Bureau.