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Unformatted text preview: Credit Reports and
FSoS 1301: Cash or Credit:
You Need to Know Lesson 9 Required Readings and Viewing Materials for Lesson 9
Federal Trade Commission (2008, March). Your Access to Free Credit Reports. R etrieved from
http://www.ftc.gov/bcp/edu/pubs/consumer/credit/cre34.shtm. Read pages 1-3.
Keown, A. (2010). Using credit cards: The role of open credit. In Olver, J.M., Lant, T.K., Plant, R., Higgins, C.A., Majeske, K.D., & Kursh,
S.R. (Eds.), Personal Finance: Turning Money into Wealth (pp. 162-193). Upper Saddle River, NJ: Prentice Hall Business Publishing.
Read pages 15-18.
Office of the Minnesota Attorney General Lori Swanson (n.d.). C redit Scores. Retrieved March 14, 2011, from
http://www.ag.state.mn.us/Consumer/Publications/CreditScores.asp. R ead pages 1-2.
Springboard Nonprofit Consumer Credit Management (2008). The consumer guide to good credit. R etrieved May 1, 2010, from
http://www.credit.org/resources/Materials. Read pages 19-21, 24-27.
Federal Trade Commission (n.d.). Annual Credit Report Request Form. R etrieved March 14, 2011, from http://www.ftc.gov/. View Form
Optional Readings and Viewing Materials for Lesson 9:
Consumer Federation of America & VantageScore Solutions. (2011). The credit score quiz. Retrieved from http://www.creditscorequiz.org/ Take the quiz.
McGuire, K. (2011, February 28). Credit score knowledge improves (weblog post). Star Tribune. Retrieved from
http://www.startribune.com/lifestyle/blogs/117086513.html?source=error Read entire article.
Office of the Minnesota Attorney General Lori Swanson (2007, March). The Credit Handbook. Retrieved March 14, 2011, from http://www.ag.state.mn.us/.
Read pages 17-18.
Savvy, N. (Host). (n.d.). Your credit report card: Credit score. FDIC Money Smart. Podcast r etrieved from h ttp://126.96.36.199/listen_credit.html# Listen to
audio clip, or read transcript.
Savvy, N. (Host). (n.d.). Your credit report card: How they work. FDIC Money Smart. Podcast r etrieved from h ttp://188.8.131.52/listen_credit.html# Listen
to audio clip, or read transcript.
Springboard Nonprofit Consumer Credit Management (2008). T he consumer guide to good credit. R etrieved May 1, 2010, from
http://www.credit.org/resources/Materials. Read pages 22-23. 1 Learning Objectives
• Comprehend the importance of a credit report.
• List the information provided in a credit report.
• Explain how a credit report is created.
• Define the role of a credit bureau.
• Identify how a credit report is utilized in the lending
• Know what a credit score is and how it is
computed. Lesson 9 By the end of this lesson, you should be able to:
• Comprehend the importance of a credit report.
• List the information provided in a credit report.
• Explain how a credit report is created.
• Define the role of a credit bureau.
• Identify how a credit report is utilized in the lending decision.
• Understand what a credit score is and how it is computed. 2 What is a Credit Report?
A credit report is a compilation of financial
information provided by credit agencies and
used by lenders to identify an individual’s
• Credit report creation
• Lender use
• Credit reporting agencies Lesson 9 The Credit Report:
A credit report is a compilation of financial information showcasing how well you manage your credit.
Therefore, the report is a reflection of how well you manage your money, credit, and debt. A credit report
takes into account how many lines of credit you have, the available amount of credit on each account, how
much credit is in use by carrying a balance, and how often payments are made by the due date.
Credit Report Creation:
When applying for a new line of credit, you are authorizing the lender to check your credit report at the
credit bureau. In doing this, you are also allowing the lender to share their information on how well you
manage your account with the credit bureau.
When you initially apply for credit, a file is created, and information regarding your name, date of birth,
social security number, and place of employment may be obtained. When applying for additional credit,
lenders will access your credit report to see how you manage your accounts and to see what credit you
have acquired. Your credit lenders will continually update your report in regard to how you manage your
account. They will record information on whether you pay on time, whether you pay late, how much you
have charged against your credit limit, and how much available credit you have left. Thus, each month you
are creating your credit report as you use and pay your accounts.
When lenders are deciding to extend a line of credit, they want to be reasonably sure the person they are
lending to will pay back the money provided. Therefore, lenders use your credit report to see how well you
have performed with credit in the past. They use this information to determine your credit worthiness and
how likely you are to pay them back.
Credit Reporting Agencies:
Three major credit bureaus manage the collection and distribution of consumer information in regard to how
an individual manages their accounts. These bureaus will be discussed further in the following slides. 3 What’s in a Credit Report?
• Personal information
• Trade lines
– List of accounts
– Requests for credit
• Public records
– Debt collection efforts
– Abstract of credit usage
• Length of reporting history
Lesson 9 The information provided in a credit report is standard across all credit bureaus.
The beginning of your credit report will include information such as your name, address, date of birth, and number of years
of employment. The report does not contain information that is prohibited by law for use when extending credit. Information
NOT provided includes: race, ethnicity, number of children, etc. I f the individual is married or has joint accounts, the
spouse’s name will also be shown. The purpose of this section is to identify the individual.
This is a list of an individual’s credit accounts, the amount of credit that has been approved, the minimum monthly payment
requirement, current account balance, and payment history. The payment history discloses whether the individual pays on
time, 30 days late, 60 days late, or 90 days late. This information outlines how much credit one has available, how much is
being used, and how well the credit is being managed.
This section lists the creditors the individual has authorized to view their credit report when applying for credit. This
information shows lenders how actively the individual is seeking and accumulating credit. If an individual opens many lines
of credit in a short period of time, this may mean the individual w ill end up with more debt than they can afford or repay.
This section contains information on all debts that have not been paid voluntarily. The lender may be trying to recover the
money owed. Public records may contain information on tax liens on property, unpaid charge accounts, unpaid medical
bills, rents due to landlords, and other types of unpaid debt. Public records will also contain information on any bankruptcy
filings the consumer has initiated. A bankruptcy filing will show on an individual’s credit report even if the individual changes
his or her mind during the process.
A summary line is included that provides a condensed version of an individual’s credit report. This section is a quick go-to
guide for how many accounts an individual has, p ast payment history, the largest credit balance carried, and whether there
are any public record items included.
The three major sections of your credit report include: trade lines, inquiries, and public records. If negative information is
provided in the trade lines section, such as late payments, involuntary account closings, or auto repossessions, this
information will be reported for 7 years. Credit inquiries will be reported for two years from the date of inquiry. Bankruptcies
are reported for 10 years. However, if an individual applies for a loan over the amount of $350,000.00 or a life insurance
policy of $1,000,000.00 or more, the bankruptcy may be reported despite the 10 year time limit. 4 Credit Reporting Agencies
The function of a credit reporting agency
• Collecting and distributing consumer credit use
– May sell information to potential creditors,
employers, landlords, or insurance
• Determining an individual’s credit rating and
• Selling names of individuals who meet a
potential lender’s list of criteria for marketing
Lesson 9 To Collect and Distribute Information:
A credit bureau’s role is to collect information, store the information, and maintain accurate records. The
credit bureau may assign the consumer a credit score based on a number of factors. These factors will be
discussed later in this lesson. Credit bureaus may also sell consumer credit i nformation to potential lenders,
employers, landlords and insurance companies who perform authorized credit checks. It is important to note
that a credit bureau does not make lending decisions. The financial institution that purchases the report
makes the decision to extend credit based on their company’s standard practices and regulations.
Determining a Consumer’s Credit Rating and Score:
A credit bureau assigns a consumer a credit rating based on their past payment history. This rating is also
somewhat determined by the individual’s forecasted payment performance. A FICO credit score is assigned
to an individual to reflect the consumer’s level of creditworthiness. This score is a numerical number that
takes into account many factors. These factors will be covered in the next few slides.
Selling Consumer Information to Marketers:
Ever wonder where all those pre-approved credit offers in your mailbox come from? Often lenders will
contact credit bureaus to request a list of names and addresses of people who meet designated lending
criteria. The credit bureau takes this criteria and generates a list of individuals who meet the lender’s
request. The lender uses this list to mail pre-approved credit offers to potential customers. However, the
offer is often subject to verification because the lender has not seen the individual’s credit report or
employment status. These marketing inquiries are different from the inquiries that are generated when you
authorize a “credit check.” Marketing inquiries are not shown on reports sent to potential lenders. However,
when the consumer accesses their credit report, they will see the marketing inquiries made in a section
separate from the authorized requests for credit. 5 Obtaining Your Credit
Report Individuals may obtain a free copy of their credit
report every 12 months from each of the three
credit reporting agencies.Your free credit report
can be obtained three different ways:
1. Visit https://www.annualcreditreport.com
2. Call by phone: 877-322-8228
3. Request by mail:
a. Print off the form provided in this lesson
b. Mail completed form to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
Lesson 9 According to the FACT Act of 2003, every individual is eligible to obtain their credit report from each of the
three national credit-reporting agencies. An individual’s credit report can be obtained using the means listed
in the slide. We suggest ordering one of the three offered credit reports from Equifax, E xperian, and
TransUnion every four months. In doing this, you are able to ensure all information is correct and that
identity theft has not taken place.
In order to obtain your credit report, you must provide identity verification through provision of your name,
address, Social Security number, and date of birth. If your address has changed within the last two years,
you will also have to provide your previous address. In addition, the credit reporting agency will request you
answer some verification questions pertaining to your extended lines of credit.
It is important to note that www.annualcreditreport.com is the only government authorized means of
obtaining your free credit report. We strongly recommend that you do not use third parties to obtain your
credit report (other than Equifax, Experian, and TransUnion).
An individual may acquire an additional free copy of their credit report should:
- They be denied credit, insurance, housing, or employment in the past 60 days.
- They be the victim of identity theft and suspect information is incorrect on their credit report.
- The unemployed individual plan to apply for employment within the next 60 days
- They currently receive public assistance.
- The information in their credit report be used to make an unfavorable decision against them.
- Their request for a credit report investigation result in modifications.
- They live in one of the following states: Colorado, Maine, Massachusetts, Maryland, New Jersey,
Vermont, or Georgia. 6 The Major Credit Bureaus
There are three major credit bureaus:
– To request report: 800-685-1111
– To report fraud: 800-685-6285 • Experian
– To request report: 800-397-3742
– To report fraud: 888-397-3742 • TransUnion
– To request report: 800-888-4213
– To report fraud: 800-680-7289
Lesson 9 There are three major credit bureaus:
Equifax, Experian, and TransUnion. Each of these companies is separate, and they
do not disclose information to one another. However, in the instance of fraud or
identity theft, information is shared amongst one another. Federal laws regulate this
practice. This action is a safeguard to deter the thief from opening additional accounts
in the victim’s name.
Each bureau has developed relationships with different companies, banks, credit
unions, and other businesses. These organizations and corporations pay the credit
bureau an annual fee to access consumer credit report information.
Three Different Credit Bureaus Means Three Different Credit Reports:
Each credit bureau obtains different information. For instance, only one credit bureau
may receive record of your credit transactions at a certain store. This is because the
retailer only reports the consumer’s account activity to the credit bureau with which
they have formed a relationship. Thus, it is not uncommon for the three bureaus to
have credit reports showing different information. It is of great importance that an
individual check all three credit reports before making major purchases, such as
buying a home. Mortgage lenders know that credit reports differ and check reports
from all three bureaus in the loan approval process.
While credit bureaus provide a detailed summary of your past credit usage, it is best
to obtain your credit score from FICO. There are other non-FICO scores available, such as
VantageScores and Empirica. However, these indicators are not as widely used as the FICO Score. You
can obtain your FICO score at m yFICO.com. 7 Your FICO Credit Score
An individual’s credit score provides an overall
rating of their credit risk.
The score ranges from 300-850. It is
generated using the following five factors:
Pursuit of New
10% Types of
10% Length of Credit
15% Payment History
35% Outstanding Debt
30% Lesson 9 The FICO score is widely used by lenders and creditors when determining whether to extend credit to an
individual. The FICO score is generated using a complicated algorithm that takes the following factors into
1. Payment History (35%):
This information includes p ayments made on time, late payments, debt that has gone into collection, and
2. Outstanding Debt (30%):
This includes any information on credit card balances, loans, and number of credit cards.
3. Length of Credit Card History (15%):
Age of longest held credit account, average age of credit account, and time since accounts were last used
4. Pursuit of New Credit (10%):
Information on number of inquiries from potential lenders and number of newly opened accounts is included
5. Types of Credit Used (10%):
The more balanced a report is, the higher an individual’s score will be. Creditors like to see both installment
and revolving accounts. Information on bank cards, department store cards, finance companies, secured
credit, and unsecured credit is provided here.
An individual’s credit score ranges from 300-850. In order to obtain a credit score, you must have these
three things on your file: 1. At least one credit account 6 months or older, 2. Reported credit activity within
the last 6 months, and 3. Absence of message stating “Social Security number reported as deceased.” 8 What the FICO Score
• Consumer-generated inquiries.
• An individual’s gender, race, religion,
occupation, homeowner status, zip code, and
• Account review inquiries.
• Accounts “under dispute.”
• An individual’s participation in a debt
management program. Lesson 9 Consumer-Generated Inquiries:
When an individual requests and obtains their credit report, they do not impact their credit score.
Individual’s Personal Information:
An individual’s personal information in regard to their gender, race, religion, and occupation are not taken
into account when determining the FICO score. In addition, the score does not consider whether or not the
individual is a homeowner. It doesn’t even take into consideration what zip code the individual lives in. An
individual’s income level is not a determining factor.
Account Review Inquiries:
Some creditors do “ account reviews” of their current card holders. This means they will periodically check
their consumer’s credit report. These inquiries are not taken into consideration when generating a FICO
Accounts Under Dispute:
An individual’s credit score is not impacted when an account is labeled “ under dispute.” An account may be
under dispute when an individual questions a charge made on their account. By law, the creditor must
report to the credit bureaus that the a ccount is “under dispute.”
Participation in Debt Management Programs:
An individual’s participation in a debt management program does not impact their credit score. However,
their enrollment in the program may be reported to the credit bureau. 9 Rate Shopping
When shopping for a loan for a house or a car,
you may have multiple inquiries made on your
credit report while trying to find the best deal.
However, all inquiries made within a 30-day
period will count as one inquiry. Lesson 9 When shopping for a house or car, you may speak to multiple lenders in trying to
acquire a loan at the best rate possible. Therefore, multiple lenders may request to
access your credit report despite the fact you only need one loan.
When computing your FICO credit score, mortgage and auto inquiries made within the
past 30 days will not affect your rate. This is known as “rate shopping.” All inquiries
made during the rate shopping period will count as one inquiry. 10 When to Check Your Credit
It is best to check your credit report when:
• You lose your wallet.
Making a major purchase.
Seeking employment with financially sensitive
work. Lesson 9 When You Lose Your Wallet:
When you lose your wallet or one of your credit cards, it is important to check your credit report right away.
Someone could potentially use your personal information to open new lines of credit. Credit cards could
also be used to rack up debt. Even if your credit card or wallet is returned to you, it is essential to still check
your credit report. An individual could use your credit card number to purchase something online or through
a television advertisement. Checking your credit report will help you to identify unknown accounts and
When M aking a Large Purchase:
Before shopping for insurance or a major purchase you intend to finance through credit, check your credit
report. For example, when shopping for an auto loan, look at your credit report first to ensure there are no
errors. Resolve any mistakes before shopping for your major purchase. Having a strong credit report and
score will help an individual acquire the best loan possible.
When Seeking Employment that Deals with Financially Sensitive Information:
If you have reason to believe your employer will want to check your credit report as part of the hiring
process, it is important for you to check your credit report beforehand. This way, you will know what is on
your credit report. For example, if the job entails handling money or expensive items, the employer may
want to check your credit to be sure you don’t have too much debt and that you have been handling your
This is a reasonable action since people who have debt problems are more likely to steal from their
employer to help relieve their personal financial pressures.
If there are any errors in your report, it is t ime to have them corrected. Be sure to check your report about 2
months in advance of any of these events. 11 Stopping the Credit Card
In order to stop pre-approved offers from being
mailed to your house, opt-out by calling the
• 1-888-5-OPT- OUT Lesson 9 As discussed before, credit bureaus sell your name and general credit information to
creditors who may want to offer you their credit card. In order to stop credit bureaus
from mailing pre-approved offers to your house, contact the provided number to optout. Calling the number shown here will stop the pre-approved offers for a period of
two years. After two years, you will have to renew your request. 12 ...
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- Fall '11