Credit: Four Myths about Your Credit History
By Robin Holland
If you don’t learn to understand your credit, it can be a lifelong problem. You probably know you should be checking your credit report at least once a year. Do you understand what’s included in your credit report and how to read and do something about the information on it? Do you know what your credit score means?
When I work with consumers or lead workshops on financial literacy and credit, I’m always amazed at the misconceptions about credit histories, credit scores, and credit-reporting agencies.
Here are four myths about your credit history that I hear people proclaim frequently as truth:
Myth #1: “The credit-reporting agency is responsible for my debt (or credit) rejection.”
The credit report is an important part of the decision to grant you credit or not, but it’s not the only one. Each lender or creditor has a set of criteria it uses to determine whether or not you qualify for that credit. Think about it: It’s much easier to get a gas card than a credit card or a mortgage. That’s because the requirements to qualify for a gas card are not as stringent as those for a mortgage.
It’s up to you to establish an on-time payment history and a good mix of credit. Then when the creditor pulls your credit report, the creditor can look at your history, along with the other information you have provided, to make a decision about whether or not to give you credit.
A lot of the details you may provide, such as your gender, income, and employment history, aren’t on your credit report. But you can take responsibility for your financial identity and make sure the information reported about your credit history will present a positive picture of you to creditors.
Myth #2: “The credit-reporting agency put the negative information on my credit file.”
A lot of people don’t understand how credit reporting works. Credit reporting agencies put information in your file when creditors send us details about your payment history. Credit reporting agencies are not out to get you, and no one pays us to report negative information so they can avoid granting you credit. We compile the data sent to us about your financial history and present it as a snapshot of your finances.
There may be inaccurate information on your credit report (and you should frequently check your file at all three nationwide credit reporting agencies for inaccuracies), and if you find any inaccuracies contact the credit reporting agencies to dispute them.
Myth #3: “My credit score is a part of my credit report.”
Your credit score is not included with your credit report. You can access your credit report and credit score from Equifax or one of the other nationwide credit reporting agencies, but your credit score and your credit report are not the same thing.
Your credit report[IG1][EU2] is a history of how you pay your bills. It includes your credit accounts—mortgages, student loans, credit cards, and auto loans—and shows if you’ve been late or on time with your payments, the balances on these accounts, and who else has been looking at your credit report.
Your credit score is calculated from a formula based on the components of your credit report. While the score is a good reflection of you and your financial capabilities, there’s still room for interpretation. A lender or creditor will look at your score as another element in determining the risk in lending to you or giving you credit.
So you can get your credit score from a credit-reporting agency, but it is not automatically included with your credit report unless you purchase a credit report and score product or subscribe to a credit monitoring service that includes it.
Myth #4: “Credit-reporting agencies make the rules on how your credit history is reported and how long information stays on your credit report.”
Nope. The credit reporting agencies compile and report information about your credit history, but we’re not the decision makers. A government agency, the Federal Trade Commission (FTC), governs the credit reporting agencies. The Fair Credit Reporting Act (FCRA) outlines the rules on what credit reporting agencies can and cannot report and how long negative factors stay on your file.
It is helpful for people to understand what a credit reporting agency does and how information gets into their credit report. The more knowledge you have about this and your credit history the more control you will have over your finances.
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