The credit report in United States is a document prepared by each of the
three main credit reporting agencies Equifax, Experian and TransUnion.
This report is absolutely essential to get any kind of loan from banks and other
agencies. The credit report determines your credit score which is an indication
of your financial health. A lot of misconceptions prevail regarding the credit
report and credit score. In this article we try to clear some of these
misconceptions.
1. The credit reporting agencies make random
guesses for credit score
The credit reporting agencies do not arbitrarily decide on your credit score.
In fact every loan, mortgage or credit card you take is closely monitored by the
financial institution that provides it. The way you tackle your debt, repayment
and interest rates is tracked by the company and sent to the credit rating
agencies to calculate your credit score. The software used to calculate your
credit score is FICO (Fair Issacs Corporation) after the people who designed it.
It is a fairly complicated piece of software that decides on your credit
score based on established parameters.
2. The credit reporting agencies are biased
No, not at all. No consideration whatsoever is given to factors like race,
gender, nationality, marital status, or religion. It is your finances that
matter. The feedback received by credit rating agencies from your banks, lenders
etc. are the only things that matter. The idea is to establish your credit
trustworthiness.
3. I have to pay heavy fees to credit reporting
agencies to get my credit report
This is grossly untrue as the Fair Credit Reporting Act (FCRA) makes it
mandatory for each of the credit reporting agencies to send a free copy of your
credit report on your request each year. So, you can have a copy of your credit
report absolutely free of cost once a year. If you require more than that
you have to pay a small fee to the respective credit reporting agency. In fact,
it is advised that you regularly check your credit report. It is indeed one of
the best financial practices.
4. My credit report is available to public
Nothing could be more incorrect than this fact. Your credit report is Top
Secret information. The lending institutions when they are in a process of
giving you some loan can get a glimpse at it and that too with your permission.
5. The credit report prepared by the agencies is final and can't be
altered
If you find any errors in your credit report, you can report
it to the credit bureau and get it investigated. If there are errors, your
credit report will be corrected and your credit score will reflect the
corrections. To make sure that your credit score represents your true credit
history it is advised that you regularly check your credit report and scrutinize
it correctly. If any discrepancies are noted, immediately contact the issuing
agency and get it corrected.
By debunking these misconceptions regarding the credit report a person can
get more focused on maintaining a good credit score and healthy financial state.
