Credit reports are statements of individual’s credit activity and present credit situation. There are three credit bureaus—TransUnion, Experian, and Equifax. These credit bureaus collect individuals’ credit data from banks, utility companies, and other creditors regarding your payment history, debt balances, available credit, and collections. While each credit report is similar, there are some slight differences among the three bureaus’ reports.
When applying for credit or a loan, a bank or credit card company often considers the applicant’s credit report and credit score to determine creditworthiness. But lenders are not the only ones who view credit reports before making a particular decision. Landlords, employers, insurance companies, utility companies, and others may also view a credit report to assist with their decision-making.
A credit score is based on the information found on a credit report. This credit score is a numerical rating of credit risk, the likelihood of a person paying back their loan. Credit scores range from 300 to 850. Higher scores indicate lower credit risk and tend to get consumers better deals on loans and credit.
It was recently announced there were significant changes coming to credit reports—what gets reported and how the credit score is calculated. Here’s what you need to know:
There are three big changes here. First, medical debt that previously went to collections but has now been paid off will no longer show up on the credit report. This is positive news for many Americans. Second, credit bureaus will no longer report medical debts under $500 that are in collections. Finally, credit bureaus will allow six months to one year before reporting a medical debt that went to collections. This allows individuals more time to pay off the debt before it gets reported.
The buy now, pay later strategy is rapidly growing, leaving some in financial distress. This strategy takes the purchase price of an item and divides the price into multiple, equal monthly payments, creating an installment loan. The strategy leverages consumers’ desire for immediate gratification by allowing consumers to purchase items they might not be able to afford immediately.
As an example, a pair of pants may cost $100. If the consumer is unable to pay $100 now, they can instead opt for four monthly payments of $25.
Missing payments or defaulting can be costly. Not only does this result in high interest and fees, but it can also be placed on a credit report. This move is significant for the younger generation that tend to use buy now, pay later service more frequently than older generations.
Historically, credit scores were based on a snapshot, a moment in time. It did not consider the general trajectory of an individual’s credit history. Now, the general trajectory will be considered, looking at a longer period. The score will consider trended data. This is good news for those who are trying to improve their credit score.
It is important to note that, because of the Fair Credit Reporting Act (FCRA), everyone is entitled to one free credit report from each credit bureau every year. A person may acquire all three reports at AnnualCreditReport.com. This is the only site authorized by the government to provide these free annual reports. Of course, there are various other sites that can offer access to your credit report and credit score.
Given the wide use of credit reports, it is wise for a person to regularly review their credit reports and check the reports for any errors.