Credit Repair

Credit history or credit report is a record of an individual's or company's past borrowing and repaying, including information about late payments and bankruptcy. The term "credit reputation" can either be used synonymous to credit history or to credit score.

When you fill out an application for credit from a bank, store or credit card company, your information is forwarded to a credit bureau, along with constant updates on the status of your credit accounts, address or any other changes you may have made since the last time you applied for any credit.

This information is used by lenders such as credit card companies to determine an individual's or entity's credit worthiness; that is, determining an individual's or entity's means and willingness to repay an indebtedness. This helps determine whether to extend credit, and on what terms. With the adoption of risk based pricing on almost all lending in the financial services industry, this report has become even more important since it is usually the sole element used to choose the APR (annual percentage rate).

Obtaining your own credit report

USA

In the USA, the Fair Credit Reporting Act entitles every taxpayer to one free personal credit report per year and per agency. The following website has been set up for this:

• www.annualcreditreport.com

Note that the name of the site is annualcreditreport and should not be confused with a somewhat similarly named commercial site whose "free" offers may have strings attached.

The free reports are available in all states as of September 1, 2005.

Although consumers are entitled to reports from all three major agencies at once, it is possible to request one at a time. Staggering the reports every four months allows the consumer to continue monitoring their credit throughout the year.

How to improve your credit rating

• Maintain a good payment record - It is very important to pay your bills on time. A lot of late payments can lower a credit history record.

• Control of debt - Lenders want to see that you are not living beyond your means. Experts estimate that non-mortgage credit payments each month should not exceed more than 15 percent of your after tax income.

• Signs of responsibility and stability - Lenders perceive things such as longevity in your home and job (at least two years) as signs of stability. Having a respected profession can improve a credit rating.

• Credit inquiries – Keeping credit inquiries to a minimum can help your credit rating as whenever you apply for a credit card, the lender accesses your credit rating from a credit rating agency as part of the approval process. When your credit rating is accessed, a note is made of this access on the record for two years. Credit companies perceive many inquiries on your report as a signal that you are looking for loans and will possibly consider you a poor credit risk. To keep your credit rating good, try not to let companies access your history unnecessarily.

• Keep cards you don't use - Although it is believed that having too many credit cards can have an adverse affect on your credit score, closing lines of credit can not improve your score and may even hurt it. The credit rating formula looks at the difference between the amount of credit you have and the amount you're using, so reducing your total credit can make the balance you carry seem larger and take points off your score.

How to restrict companies from accessing your credit history

In the USA, conditions for credit reports are set in § 1681b. Subsections (a)(3)(A) and (c)(1)(B) allow companies to obtain such information e.g. if they plan to send pre-approved credit cards. An interesting fact, which is not communicated in the official website, is that consumers can opt out according to subsection (e):

A consumer may elect to have the consumer’s name and address excluded from any list provided by a consumer reporting agency ... in connection with a credit or insurance transaction that is not initiated by the consumer, by notifying the agency ... that the consumer does not consent to any use of a consumer report relating to the consumer in connection with any credit or insurance transaction that is not initiated by the consumer ...

(A) through the notification system maintained by the agency ...; or

(B) by submitting to the agency a signed notice of election form issued by the agency for purposes of this subparagraph.

You may find out more about opt out options by visiting http://www.ftc.gov/privacy/protect.htm#Credit

Bibliography

On the history and origins of credit reporting, see Born Losers: A History of Failure in America, by Scott A. Sandage (Harvard University Press, 2005), chapters 4-6.

See also

• Adverse Credit History
• Credit card
• Credit rating agency
• Credit reference agency
• Credit score
• Fair Credit Reporting Act
• Identity theft