Your Financial Report-Card
All of us have had the experience of schooling and are well accustomed to the concept of report cards. School report cards serve the purpose of informing the parents how a child is doing in school, what subjects he or she is good at and what areas he or she needs to work on. A school report, in essence, is a snapshot assessment of a child’s academic performance. A credit report is, in much the same way, a snapshot assessment of our financial condition. Its primary goal is to help financial institutions assess whether or not you are in a position to repay credit. The less likely you are to repay credit, the higher the interest on your loan. If your credit report is particularly bad a bank may even reject your loan application outright. A credit report, therefore, is the cornerstone of your financial planning. Without a good enough score you are less likely to have access to low-interest loans or loans with a comparatively lower down payment.
What Goes Into A Credit Report?
A credit report is quite a comprehensive document. It looks at a wide range of criteria to arrive at a conclusion about your financial capabilities. The first thing it looks at is your standing with the law. Previous or pending lawsuits and arrests indicate that you are a high-risk borrower. Time spent in jail lowers your credit score drastically. It is, in fact, one of the most crucial attributes of your credit report. A credit report also looks at your previous history with borrowing. If you frequently missed or delayed payments or took too many loans at once, the assessment firm is likely to lower your score depending on the gravity of the incidences. Defaulting a loan or filing for bankruptcy is a deal-breaker for most financial institutions. Socio-economic factors are also taken into account. Where you live is a very important consideration. So is your job. Your marital status and the number of children you have, for example, is another important criterion in such an assessment. As a rule of thumb, anything about your life that has been documented and has a bearing on your financial condition is a possible candidate for scrutiny when it comes to your credit report.
Making the Credit Report Process Fair
Because credit reports play such an important role in our financial decisions, the government has a number of checks and balances to ensure that a credit report is done in a fair and consistent manner. Most of these rules and regulations are codified in the Fair Credit Reporting Act (FCRA), passed in 1970 and amended several times since. A specialized company called a Credit Reporting Agency (CRA) carries out the function of assessing the credit history of customers. The FCRA puts forth three major stipulations that spell out a consumer’s rights when it comes to how CRAs report their credit history. CRAs are obliged by law to give a free credit report every year to any customer that requests it. Secondly, if information on a credit report is disputed and is later revoked, the CRA cannot reinsert that piece of information without informing the customer in writing within five days. Last but not least, the government regulates how long negative information stays on your record. There are varying time frames but as a general rule of thumb, negative information does not stay for more than seven years on your credit report. The only exceptions to this rule are bankruptcies, which stay on your record for ten years. There are also a number of directives that limit how a CRA can use general information about a customer. All in all, you can be assured that your credit report is being done in the fairest manner possible.