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Credit Reports in The United States

What is a Credit Report ?

A credit report is a record of your credit activities that lists credit-card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if there has been any action has been taken against you because you have not paid you bills.

The four most common pieces of information on your credit report are: 1) Identifying information like your name, any aliases, current address, previous address, social security number, date of birth, current employer, past employer, and, if you are married, the same information about your spouse. 2) Credit Information like what bank accounts you have, credit cards with stores, general credit cards, if you pay your utilities on-time, mortgages, student loans, revolving credit, installment loans. Loan information will likely include when you opened the account, your credit limit, the loan amount, who the co-signers were on the loan and your payment history. 3) Public information like any bankruptcies, tax liens, monetary and non-monetary judgments. 4) The names of whoever got copies of your credit report in the past year (for credit cards) or two (for employment purposes).

Your credit history remains on file for about seven years, usually. Personal bankruptcies will be on your credit report for ten years.

Who can look at your Credit Report?

Employers often check to see if you are reliable before offering you a job. Landlords usually want to see it to make sure you will live up to your lease. Lenders, like banks and mortgage companies check before offering you a loan. And, you can get a free copy of your credit report, if you live in the US, once a year, by calling 1-877-322-8228.

What is a Credit Score

Creditors use a credit scoring help determine whether to give you credit, and if so, how much. Your credit score will usually be determined by; Payment History, Amounts Owed, Number of Accounts Owned, Length of Credit History, New Credit, Types of Credit Used. Creditors use a statistical formula to compare this information to the credit performance of consumers with similar profiles. A credit scoring system awards points for each factor. A total number of points a credit score helps predict how likely it is that you will repay a loan and make the payments on time in other words, how creditworthy you are.

There is a big difference between having good credit and bad credit.

As an example, say you want to buy a used car for $12,000, with a down payment of $2,000 and a loan of $10,000. And you want a 48-month loan.

If you have a good credit score of say between 720 and 850 you might get a loan at an annual percentage rate of 4.97%, and your monthly payments would be $230. You would end up paying $1,047 in interested over the course of the loan.

However, if you have a not-so-good credit score of say 500 to 589, you might get a loan at an annual percentage rate of 15.83%, and your monthly payments would be $283. You would end up paying $3,562 in interest over the course of the loan.

Tips to Improve your Score

Most importantly, pay your bills on time. Payment history is an extremely important factor. Your credit score will be hurt if you pay your bills late, have an account sent to collections, or declare bankruptcy. Scoring systems often compare the amount of debt you have with your credit limits. Your score will likely be lower if the amount you owe is near your credit limit. Although having an insufficient credit history might hurt your credit score you can probably offset that by making timely payments and having low balances. Credit scoring systems take into account whether you have applied for credit recently. Applying for too many you accounts can hurt your credit score. Finally , although it's important to establish credit accounts, having too many credit card accounts may lower your credit score. Also, credit rating scoring systems sometimes reduce credit scores when you have loans from finance companies.

Bankruptcy

The results of personal bankruptcy are far-reaching and long-lasting. Personal bankruptcy is generally considered to be the option of last resort for debt management. Your credit report will show a bankruptcy for 10 years, which can make it difficult for you to buy a home, get life insurance, obtain credit and even possibly make it difficult to get a job. However, bankruptcy is a legal procedure that allows people who can't pay their debts to have somewhat of fresh start. When people follow the bankruptcy rules they often receive discharge which is court order saying they do not have to repay some of their debts. You should consider the consequences of bankruptcy carefully.

In October 2005, the US Congress made large changes to the bankruptcy laws. Because of these changes consumers are more likely to seek bankruptcy relief under Chapter 13 than under Chapter 7. If you have a steady income Chapter 13 allows you to keep property such as a car or a mortgaged house that you otherwise might have lost. With Chapter 13 the court approves a plan for repayment that lets you use your future income to repay your debts over 3 to 5 year instead of surrendering property. Then, after you have made the payments in the plan, you would receive a discharge of your debts.

Chapter 7 bankruptcy is also known as straight bankruptcy. Chapter 7 bankruptcy involves the selling of all assets that are not exempt. Property that is exempt often includes things like cars, basic household furnishings, and tools you need for work. A trustee, a court appointed official, may sell some of your property or your property may be turned over directly to your creditors. The time period during which you can receive a discharge through Chapter 7 has changed based on the new bankruptcy laws. Now you have to wait eight years after receiving a Chapter 7 discharge before you can file again under that chapter. The waiting period for Chapter 13 is much shorter. It can be as little as two years between filings. Both Chapter 7 and Chapter 13 bankruptcies may help you get rid of unsecured debts and stop foreclosure, garnishments, debt collection activities, utility shutoffs and repossessions of property.

With both Chapter 13 and Chapter 7 bankruptcies you're allowed to keep certain assets, although this varies state by state. Things that are usually not erased in a personal bankruptcy include things like child support, fines, taxes, alimony and some student loans. Bankruptcy usually does not allow you to keep property if your creditor has a security lien or unpaid mortgage on it, unless you have an acceptable plan to repay your debts. Other recent changes in bankruptcy laws include obstacles you must overcome before filing for bankruptcy. For example, you have to get credit counseling from an organization approved by the government within six months before you file for any bankruptcy relief. You must satisfy a means test before you file Chapter 7 bankruptcy. The means test confirms that your income is below a certain amount. The amount varies by state.

Debt collectors

There are certain things debt collectors cannot do. For example, debt collectors cannot contact you at work if your employer disapproves of the phone calls. Also, debt collectors cannot lie to you, harass you, or use unfair business practices. They are also obligated to honor written requests from you instructing them to no longer contact you.








About the author

Mark McCracken

Author: Mark McCracken is a corporate trainer and author living in Higashi Osaka, Japan. He is the author of thousands of online articles as well as the Business English textbook, "25 Business Skills in English".

Copyright © 1997 - 2009 by Mark McCracken , All Rights Reserved