For those people who have ever been turned down for a credit
card or loan, they have probably had to quickly get educated about a credit
report. Credit reports are records of
payment histories. When a credit card of
loan is taken out, the lender typically reports how a person pays on that loan
to the three major credit bureaus—Experian, TransUnion, and Equifax.
If a person always pays their credit cards and other loans
on time, the lenders report this to the credit bureaus. However, if you are a month late—or worse,
two months late—this is also reported.
The more records that show late payments, and the longer the duration of
the late payments, the lower your credit score becomes. Lower credit scores usually resort is more
difficulty acquiring credit cards and loans, and higher interest rates when you
do.
Besides late payments, there are other things that can lower
a person’s credit score. Of course, the
biggest hit that a credit report can take is a bankruptcy. However, many people do not realize that
applying for a lot of credit also lowers their credit score. Every time that a lender obtains a copy of
your credit score, a record of that—called an inquiry—is noted on your report. Having several inquiries in a three month
period results in a lower score.
In addition, opening several new lines of credit at the same
time can lower your credit score. This
is viewed as a problem because other lenders view having access to too much new
credit as a potential risk. People who
experience financial hardships often rely on their credit cards, regardless of
whether they can make the payments at the end of the month.
Finally, it is important to realize that payment histories
of past credit cards, loans, and bankruptcies remain on a credit report for
7-10 years. The past two years of
payment histories are usually the most important, but the record of a
charged-off credit card can remain for a decade.
The credit bureaus make their money by storing your
information, and then selling it to companies who want to check up on your
credit history before extending a loan.
Many people are under the assumption that these companies are doing a
public service, and by virtue of that public service have some sort of
obligation to make sure that their information is 100% accurate.
In reality, while these companies do make every attempt to
keep accurate records, they are in the business of making money. They make that money by selling their
records, not by being fact-checkers and researchers for the masses. The fact that many people have inaccurate
information on their reports is what helps the person who wants to clear
negative information that is correct from their report.