Overcoming the Fear of the Unknown - Your Credit Report
One of the first things I ask clients interested in buying a home is: “Are you pre-approved? Or at least, Pre-Qualified?” (and if they know the difference. Do you? If not, I covered this in a previous blog post: Prequalified vs. Preapproved: What's the Difference & Does it Make a Difference?). "Yes" or "No" are typical, but I'll also get these responses:
- "I haven't yet - I'm not sure how my credit will affect it", followed by:
- “I’ve never checked my credit report, where do I start?”, or
- “I haven’t checked my credit report in years, and I’m a little scared to look”, or
- “I think there’s an error in my credit report – how do I check this and fix it?”
One of the best tools to get you started is through the free service, annualcreditreport.com, which allows consumers access to one credit report from each of the 3 major credit reporting companies per year: Equifax, Experian, and Transunion. This free service is provided by the Fair Credit Reporting Act (FCRA), which is enforced by the Federal Trade Commission (FTC).
Each credit reporting company records information about you filed into a credit report, including accounts, payment history, public records. The credit reporting companies sell this information to creditors, insurers, employers and any other business involved in evaluating your personal or financial status. According to the FTC:
The Fair Credit Reporting Act (FCRA) requires each of the nationwide consumer reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. The FCRA promotes the accuracy and privacy of information in the files of the nation’s consumer reporting companies. The Federal Trade Commission (FTC), the nation’s consumer protection agency, enforces the FCRA with respect to consumer reporting companies.
There are numerous sites that offer similar services, sometimes with an offer to provide you with your credit score, at a cost, but why not start with a FREE service, that will get your report directly from the credit bureaus?
After completing a personal information screen (for security purposes), you'll be taken to a menu screen where you can select the credit bureau(s) to access your credit reports:
This will take you to your Credit Report Summary page. This will display differently for all 3 credit reporting companies, but typically includes the following:
- Personal Information
- Current and Previous Names, Addresses, Employers
- Negative Information
- Personal Information
- Other Identification
- Consumer Statement
Types of Accounts
- Mortgage accounts include first mortgages, home equity loans, and any other loans secured by real estate you own.
- Both “Open” and “Closed” Accounts will display
- Installment accounts are credit accounts in which the amount of the payment and the number of payments are predetermined or fixed, such as a car loan.
- Revolving accounts are charge accounts that have a credit limit and require a minimum payment each month, such as most credit cards.
- These are all accounts that do not fall into the other categories and can include 30-day accounts such as American Express
Accounts that contain a negative account status. Accounts not paid as agreed generally remain on your credit file for 7 years from the date the account first became past due leading to the current not paid status. Late Payment History generally remains on your credit file for 7 years from the date of the late payment.
- A collection is an account that has been turned over to a collection agency by one of your creditors because they believe the account has not been paid as agreed.
- Public record information includes bankruptcies, liens or judgments and comes from federal, state or county court records
OK, I have my credit reports. Now What?
They say knowing is half the battle. Now that you have your credit reports, you now know what information is and has been reported about you to various businesses you deal with, from lenders, to insurance companies, to employers, etc. Are you satisfied with this information, or have you found discrepancies in the reports?
Know your rights.
Not only do you have the right to access the information reported about you, you have the right to dispute information you find inaccurate. Each credit reporting company provides the path for you to dispute any data that you find incorrect in your file, whether online, by phone, or mail. THIS IS EXTREMELY IMPORTANT to note. Comb through your credit reports from all 3 companies. They are completely separate businesses and do not always have the same exact information reported. Don’t assume that by disputing the information through one credit reporting company, that this will “fix” the issue (if it’s been recorded) by the other 2 agencies. When you file a dispute, the credit bureau you contact is required to investigate your dispute within 30 days. They will not remove accurate data from your file unless it is outdated or cannot be verified.
Annual Credit Report FAQ’s
Fair Credit Reporting Act
Additional information on Credit Reports from the FTC
Caveat: I'm not a credit counselor, but I am a Realtor, and as an agent of my clients, one of my top priorities is looking out for their best interests as an advocate.
My goal with this blog post is to give the potential (first-time or experienced) homebuyer who may be unaware, or living in fear, of their credit history, and giving the first few steps toward knowing where they stand.
I hope you found this information helpful. Please let me know how I can help you take the next steps closer to owning a home!