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.
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.
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.
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.
Keep in mind a few things about credit:
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.
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
Accurate Data Corporation of Tennessee: 1-800-806-4299
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