Are You in the Dark about Your Credit History?

Farm Business Management Update, June 1998

By By Benjamin K. Burkhart, David M. Kohl, and Barbara Newton of the Department of Agricultural and Applied Economics, Virginia Tech

Like a shadow, its always there: Your credit history follows you wherever you go. When you apply for a loan, lenders are likely to evaluate your credit record. Your credit history is a strong indicator to the lender of your probability to repay obligations on time. A job application can result in the company checking your credit history. Based on what the research reveals, you could pay higher interest rates or larger down payments, be rejected for the loan, or even lose a potential job.

Credit Reports

Every time you have conducted business with a lender or used your credit card, you've been tracked and placed into a database. Your lending institution or creditor reports all kinds of information about your credit standing to one or more of the three major credit bureaus: Experian, Trans Union, and Equifax. These credit bureaus have the information that acts as a data clearinghouse for many creditors.

With quick credit scoring systems, lenders simply analyze key pieces of data, such as years of employment, residence, income and credit report information, to come up with a fast analysis of your credit. The credit report keeps track of everyone that checks your credit history: spouses, lenders, promotional credit cards, department stores, and other creditors. However, no one can check your credit history without your permission. The report presents a credit profile, which gives a breakdown of the parameters and status of each account. The summary also includes bankruptcy information, liens filed, past due accounts, and other litigation information. Creditors use this and other information to decide if you are creditworthy.

Reporting Discrepancies

Although these credit bureaus are highly computerized and automated, they can be flawed and do make mistakes. These inaccuracies make it important to keep up with your credit standing. Credit reports are generally more accurate in urban than in rural areas because some agricultural lenders and agribusinesses do not always report the credit standing of customers to credit bureaus

If you are denied credit, you are entitled to a free credit report (Federal Law requires that the creditor provide you with the name and address of the credit bureau they used). If you contact the credit bureau and find some incorrect information, the bureau has 30 days to correct the information. Credit bureaus also give you the option of adding a short personal statement, up to 100 words, to the credit report explaining why you feel the information is incorrect. You can have the credit bureau send corrected credit reports to anyone who has requested your credit history in the last six months, and the information stays on your permanent record.

Checking Your Credit History

If you contact a credit bureau to check your history, you may be required to go to their home office and view the report. They will send you a copy, or in some cases, give you details over the phone. Usually a charge of $8 is made for the information. For $39.95, Accurate Data Corporation of Tennessee will compile your credit reports from the three major bureaus and give you a concise explanation of your credit standing.

Credit Cards

Managing credit is important, especially the plastic kind. Seven out of ten families revolve credit card balances each month. Making only the minimum payment on your balance at higher interest rates puts you deeper in debt and looks bad on your credit history. The typical American holds eight credit cards and carries a balance of around $3,900. About 27 percent of all small businesses are started with credit cards. Instances such as these put people "in the hole" quickly.

In a recent Ag Finance class at Virginia Tech, one student indicated that she had a total of $9,000 of credit card debt on 4 different cards. She ignored the payment notices, which played havoc on her credit history. Like many students she went to her parents, but they were not in a position to assist. Her poor credit history led to denied credit with traditional lenders when she requested refinancing of the credit card debt. The only solution was to pay 14 percent of her $25,000 salary for the next 7 years, at the higher credit card rates.

Credit cards, if used responsibly, can be a way for people with no credit to build a good credit history. A recent graduate attained a very high paying job. But because he had no credit history, he could not secure a car loan.

Notable Takeaways

Keep in mind a few things about credit:

• Bankruptcy will follow you for at least seven years. Filing dates and total debts appear on credit histories.
• High credit limits on credit cards are most important to potential lenders because they are unsecured lines of credit that can lead to financial difficulty.
• Checking your credit history for accuracy at least once every two years is essential. You should, at the very minimum, update personal information such as address and marital status if they happen to change.
• A poor credit history takes a long time to correct. Beware of companies that proclaim to be able to fix your credit quickly. Many times, these companies take your money and then vanish, doing nothing but putting you deeper in debt.
• Credit histories are being used more in acceptance or rejection of loans or credit lines. Creditors are also using quick scoring credit systems to analyze your credit, so it is important to know where your credit stands.
• Obtaining a copy of your credit history is as easy as contacting a credit bureau and paying a small fee. You should check it every two years. Remember you can include a 100-word personal statement in the report, if you have had difficulties in the past.
• Extending permission for too many credit history checks can make you look risky to a potential creditor. A high ranking, well paid corporate officer found himself unable to secure a loan because he had shopped around for lower rates to refinance his home. The many credit checks on his report lowered his credit score. He was denied the loan.

Credit can be a useful tool in managing your finances. The better your credit history, the less interest and other fees you pay. Checking your credit history is easy: contact someone and make sure yours is correct -- so that your shadow doesn't sneak up on you.

Credit Bureaus
Experian (credit reports for a reasonable fee): 1-800-682-7654
Trans Union Corporation (credit reports - $8): 1-800-916-8800
Equifax (credit reports - $8): 1-800-685-1111

Other Services
Accurate Data Corporation of Tennessee: 1-800-806-4299

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