Credit Reports and Credit Scoring Made Easy
Despite the risks, easy consumer credit is a tool that can be used artfully by a smart person who is willing to accept certain guidance. At the heart of consumer credit is the credit report and credit score. In fact, the credit report with an accompanying credit score is by far the most important piece of personal information reviewed when you apply for a loan. The credit score, is one hundred percent derived from what is on your credit report. There are three main credit reporting agencies in the United States: Experian, Equifax and Trans Union. These credit bureaus collect data from creditors (banks, collection agencies, credit card companies, etc.) and from public records (bankruptcies, liens, judgments, etc.) and basically generate a report card on you each time someone pulls a credit report in your name. By the way, in case you were wondering, the credit bureaus are NOT owned or controlled by the government. In fact, the credit bureaus spend considerable time in "hot water" with the government due to the intense regulation and oversight applied to their industry by the Federal Trade Commission and the states' attorneys general.
Prior to 1996, the three main credit bureaus, Experian, Equifax and Trans Union, worked pretty hard at being hard-to-reach. In fact, it was nearly impossible to find an actual credit bureau telephone number, answered by an actual person. The message was clear: don't write, don't call, we don't care.
Then, the federal government got fed up with the non-stop complaints flooding in about credit bureaus and they enacted an amendment to the Fair Credit Reporting Act requiring that the three credit bureaus maintain telephone numbers that consumers could use to call in and handle credit report errors.
The bureaus dutifully complied. The phone lines were put in place and the phone numbers were made active. But, they overlooked one, small detail: they didn't provide the staff to answer the phones. Millions of phone calls went unanswered and millions of consumers were put on hold for unreasonable periods of time. The credit bureaus went so far as to specifically block certain calls from specific area codes.
Ultimately, the Federal Trade Commission came crashing down on them and hit them all with fines totaling $2.5 million. The bureaus quickly cleaned up their act. Sort of.
In 2003, the FTC had to smack one of the credit bureaus, Equifax, again for not answering their phone. Equifax, after being sued by the government, paid another $250,000 for blocking calls and making people wait too long.
As big as these penalties seem, however, they probably don't even put a dent in the credit bureaus' bank accounts. And, these series of lawsuits aren't nearly the only ones that credit bureaus face from the government. The FTC and many state attorneys general have sued the credit bureaus, over and over again, to force them to deal with consumer disputes and consumer complaints. A nineteen eighties review of all the complaints received by the FTC revealed that a full forty-four percent of all complaints received by the FTC dealt with credit bureaus. All of this suing and all of these complaints resulted in the United States Public Interest Research Group (a consumer advocacy organization) granting the credit bureaus the title of "Public Enemy Number One." Clearly, the credit bureaus aren't governmental entities.
The credit report contains a history of how you've done with credit in the past, listing late payments and other credit mess-ups going back seven to ten years. It also indicates where you're at today -- how much you owe against how much credit you have been offered. Lastly, the credit report also provides a picture of what credit you've applied for in the recent past. All of this information is then thrown into a complex formula, and your credit score is spat out of the computer. This single number, this credit score, is the most important piece of data in determining how much credit you can have. In effect, a bunch of huge computers spread around the country instantly crank out a picture of how you borrow and how you spend and they condense it all down to a single three-digit number: your credit score.
If your credit score is under 620, then you're considered a low-end borrower and you may struggle endlessly to find credit at any rate. If your score is over 620 but below 700, you'll have some difficulties, but you should be able to get the basics such as a home or an automobile. You'll pay a little more and some doors will be closed to you, but you'll definitely be "in the game." If your score's over 700 (or 720 for some prime lenders), then the sky's the limit. You'll qualify for just about anything that your paycheck will support. With a better credit score, your whole lifestyle transforms -- even without making any more money. Bad credit breeds bad credit and it's a downward spiral that's dang near impossible to overcome.
Consider these two, real life characters. Both work at the same place, make about the same amount of money and both are close in age. However, one guy has terrible credit and the other guy has fantastic credit. While their job and their income are virtually identical, their lifestyles couldn't be more different.
Jake is a manager of sales for an internet paintball company....
Credit Revolution: Path of the Smart Consumer 2007 John C. Heath, Esq., Dr. Randy Padawer, Jayson R. Orvis. All Rights Reserved. Published by Far Cliffs Multimedia, LLC