(HamiltonDebtRelief is not a credit repair services organization and the following should not be construed as credit advice. For advice about credit repair, contact an organization licensed in this area. )
A credit score is a measure used by various lenders to determine a prospective client's credit risk or credit-worthiness. It also helps these creditors find out if an applicant has the ability to make timely, regular payments. An individual's credit score also serves as a gauge for lenders to determine the terms that they will offer to a potential customer. The terms include, but are not limited to, interest rates, loan qualifications, and credit limits. Potential landlords and employers may also perform credit checks in evaluating your application with them. However, an item in the Federal Credit Reporting Act (FCRA) states that the individual has the right not to consent to this credit check.
What's in a score?
The most commonly used credit scores are the FICO scores, developed by the Fair Isaac Corporation. A FICO score is based on documented information from the three major credit reporting agencies—Experian, Equifax, and TransUnion. It is the responsibility of these organizations to collect, store, and update customers' pertinent credit information, and lenders purchase information from these three bureaus for their personal records. A person's credit report from each of these bureaus will shape what his or her individual credit score will be. Typically, these agencies do not share information, so expect differences when you put each of the credit reports side by side. Also, not all creditors report to these organizations, so marked differences are evident. In effect, you may have three different scores from these three firms. If all three of your credit reports are exactly the same, however, your individual scores in each bureau should have no dramatic differences in comparison to each other.
Aside from identifying information from a borrower, such as their name, Social Security Number, contact information, and address, a credit report also contains a listing of all credit accounts, credit inquiries, and public records. Credit accounts, also known as trade lines, are composed of the consumer's loans, credit cards, and other credit accounts that have been opened since he or she started using credit. Other than the listing of information, the types of accounts, open dates, balances, and payment history details are also indicated on the report.
The report also includes credit inquiries. On a basic level, it means the requests that the cardholder or a third party has made in reference to gaining access to the credit report. There are two types of credit inquiries. A hard inquiry refers to a request made by a lender, stating that the customer has granted them permission to have access to his or her credit report. Hard inquiries can make an impact on an individual's credit score. On the other hand, soft inquiries are requests that you did not take any part in; these occur when lenders take a peek into an individual's credit report to give them pre-approved credit offers. As opposed to a hard inquiry, a soft inquiry does not have any effect on the score. Lastly, public records consist of collection accounts, bankruptcies, foreclosures, repossessions, tax liens, wage garnishments, judgments, and lawsuits. Local courthouses provide the information to credit bureaus. Bankruptcies may remain on a credit report up to ten years, while other public records are noted for a much shorter time period, which is seven years.
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