Although the laws are changing, there was a time when the only thing consumers were entitled to for free was a copy of their credit report once each year from each of the three major credit reporting agencies. However, as reported by Bloomberg Business Week, now recent legislation is making it possible for consumers to get a free copy of their credit score if they have been denied credit based on that score. As laws continue to change, one thing remains constant and that is our inability to understand just how we are graded in terms of creditworthiness.
Credit Bureaus
One of the first things that confront us is in understanding just what a credit bureau is. There are local credit bureaus that call us whenever we become delinquent in payments but there are also the national credit bureaus (Equifax, Experian and TransUnion) that keep tabs on anything and everything related to what we have and what we owe. Sometimes these credit bureaus are referred to as credit reporting agencies, which is actually a much better name for them. They are not the folks who call us when we are in arrears on payments but they are the ones who tell potential lenders, landlords and employers whether or not we deserve whatever it is we are applying for.
Credit Score, Credit History & Credit Report
Another area which is oftentimes confusing to the average consumer is the difference between a credit score, a credit report and a credit history. Actually, they are all related but a simple way of looking at it is that the credit report details your credit history. Think of it like a report card when you were in school. Your history is all the tests you took, the assignments you handed in and whether or not you were absent or late on any given days. That is all tallied up to give you a ‘report card’ which is your credit report. Based on the history detailed in your credit report, each of the three reporting agencies have some fairly complex mathematical formulas to come up with your credit score. This would be like your final grade at the end of the year.
Benefit of Checking Your Credit Report
Unlike your report card in school, at least you have the option to dispute any errors or fraudulent entries on your credit report. Students usually don’t question the grades their teachers give them. They may complain, but rarely dispute those grades. However, you are given the legal right to dispute any entries on your credit report if you feel they were made in error or that it could be a case of identity theft. In fact, you are encouraged to get a free copy of your credit report from each of the three reporting agencies once a year for just this purpose. If something is not right you can take steps to have it corrected.
The language of credit may be confusing but there are plenty of resources out there to help you have a better understanding of what it all means. Whether you are looking at ways to improve your credit score or are simply looking at how to correct an erroneous entry, help is available. Understanding your credit score may be another matter altogether as each agency calculates your score a bit differently. Even so, if you find a way to keep your payments current, don’t spend more than you make and can show that you use the money you earn wisely, your credit score should not be a problem. The real problem is understanding the language, but have no fear – there are plenty of interpreters out there who are willing to help!
