Ka Wai Ola - Office of Hawaiian Affairs, Volume 28, Number 4, 1 April 2011 — UNDERSTANDING CREDIT REPORTS [ARTICLE+ILLUSTRATION]
UNDERSTANDING CREDIT REPORTS
By Quentin Flores
// \ A /e regret t0 ** 1 /\ /inform you \ / \ ī that your \ī \ī application V V has been denied at this time. This decision is based in whole or in part on information provided on your credit report." Have you ever applied for a loan and received a letter from your lender stating something similar? Did it make you wonder what's in a credit report that determines your creditworthiness? To answer these questions and understand a credit report, a brief review will be discussed here; however, we first must look at the reason a credit report was created. Credit reports were created to assist banks, hnaneial institutions, phone companies, landlords, etc., in making lending decisions. It's a measure of ones creditworthiness, individual hnaneial aeumen and hnaneial heahh. It is one of several factors used in making credit decisions. There are seven areas that are covered in a credit report: Risk Score, Safescan Detection, Identification, Puhlie Records, Collection Items, Trade Lines and Inquiries. The first is Risk Score, whieh consists of a range of numbers, 300 to 850, where the higher the number, the better. Risk Score is associated with the "odds" of a person going delinquent within the next 24 months. Fair Issac & Co., or FICO, scores are made up of purely statistical information, whieh helps
alleviate the emotion in making a credit decision. Data is placed in the model and your score is determined. The second, Safescan, is a frauddetection system. It alerts the user of any irregularities in the information that was given and/or entered into the systemto access the report. These consist of Social Security numbers that were never issued or are not associated with the individual, as well as addresses of hotels, motels and storage facilities. The third is Identification. It lists the name, any aliases, former name, Social Security number, birth date/ age, employer/occupation and up to three addresses. Eaeh time you initiate credit on your behalf, this information is updated to reflect the most current data. All three areas are usually eaptured on the first half of the report, whieh makes them easy to find and understand. The next four areas play a major role in determining your creditworthiness. The Puhlie Records section eontains information that is reported by county, state and federal courts to the credit reporting agencies. Information consists of Chapter 7 or Chapter 13 bankruptcies, judgments, liens, tax liens, garnishments, child support, and satisfied judgments and liens. All of the information ean be on your report from five to 10 years. Collection Items consist of data provided by eolleehon agencies, including any debts owed to them and any paid collection information. It will stay on your credit report for seven years from the date of delinquency with the original creditor. The Trade Lines section is where the rubber meets the road. It is here where credit history is found. It consists of all credit that was issued individually, jointly or as an autho-
rized user. As long as the account is open, information is reported from the creditor to the agencies. The reporting will continue until the account is closed and paid in full. Onee the account is closed, it usually stays on your report for approximately two to 10 years. The Trade Lines are separated into two categories, Revolving and Installment. Revolving eonsists of lines of credit, credit cards and home equity lines of credit. Installment loans, whieh are a
closed-end type of loan, consist of auto loans,
mortgage loan: and personal loans. The information includes the creditor's name; open date of the account; the last date a company made
a report to a credit bureau on the
account; current status; credit limit and high credit, whieh may be higher than the credit limit; monthly payments; paid and closed items; and 30-, 60- and 90-day ratings, whieh represent the length of delinquency on eaeh account. The Inquiries section is the last but certainly not the least important. It consists of all the companies that pulled the credit report within the last 24 months. These are what we eall in the industry "hard pulls," where you, the consumer, initiate the authorization with the intent to do business with that company. Other companies that might pull credit reports consist of eolleetion agencies, loan adjustment departments or account review departments, whieh need to review your credit. For information on this subject and general information on how to improve your scores, what affects your score and what is not included in your FICO score, eheek out www. myfico.com/crediteducation. ■ Quentin Flores is OHA's Consumer Micro-Loan Officer.
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