Clearing Up Mysteries with a Free Credit Report


Credit reporting, for better or for worse, is the principal means by which most lenders determine whether or not an applicant is a sensible risk. Free credit reports are widely-available these days and offer some insight into what a creditor sees when one applies for a financial product. Credit reporting is used for most types of lending including mortgages, auto loans, small signature loans and credit card loans. These reports operate on sometimes mysterious and oftentimes counter-intuitive rules. Understanding what makes them tick can help one improve one's credit rating over time.

Free credit reports will detail, first and foremost, past due and late payments. It is from these reports that credit card companies determine when to impose penalties based on the arguably-ethical practice of "universal default". Any bill on which one has defaulted or even paid past due comes up as a negative on one's credit report and can have surprisingly significant effects on one's overall rating. Don't expect a small payment amount to lessen this damage. The issue is that the consumer failed to make a payment, even if the amount was as insignificant as $20 on a revolving store account.

Free credit reports will also detail the entire list of accounts which are still open under the creditor's names. These accounts, and their amounts, will have huge impacts on one's credit score. Sometimes the ways in which they influence one's score, however, are downright confusing. It is possible for one to improve their credit score by taking on more debt and to diminish their credit score by having zero debt. In fact, an individual who has managed to get through life without taking on any debt at all will likely have a lower credit score than those who have debt, simply because they are an unknown variable to the credit market.

Getting a free credit report is a right guaranteed by federal law. Any individual may get such a report once per year or upon being denied any type of financing. There is good reason that this law was written, most of it having to do with an attempt to empower consumers against the agencies that determine these scores on which so many individuals depend for the maintenance of their daily lives. These scores, on close examination, are unfortunately mostly out of the control of the consumer's lives who they affect.

A free credit report will contain the overall score that will describe an individual to the vast majority of creditors. This score, in most cases, will range between 350 and 700. There are some individuals who have exceptional credit beyond 700 but this is fairly rare and generally restricted to those individuals who are very affluent and may need no credit at all to get by in life. Most individuals will fall between 400 and 700, depending on how well they have managed their finances and how much debt they have taken on. Unfortunately, these scores and the agencies that determine them are far from perfect.

It's too common for individuals to get a free credit report and instantly be confused by some of the listed creditors. To put it simply: credit reporting agencies make their share of mistakes. These companies are generally antagonistic toward consumers and it is very difficult to get mistakes on one's credit report fixed. To make it more complex, there are three separate reporting agencies. If a creditor happens to use a conglomerate report, which most of them do, there can be errors whose origins are the result of mistakes by any one or all three of the reporting agencies.

The free credit report may well list addresses at which the individual never lived. This is damaging to one's credit score as moving around tends to lower the score. Why this would affect one's credit score is something of a mystery to many consumers but, of course, the consumer has no control over how this number is determined and there is little that can be done. Any erroneous addresses, however, should be treated as seriously as financial errors and should be petitioned for removal as soon as possible.

A free credit report offers insight into how most lenders might be assessing, and therefore declining, one's credit but not all. Payday lenders and car title lenders operate unburdened by this system. Their client's income and collateral are the means by which they determine credit worthiness. This means their clients have more control of their financial standing and don't have to worry that a mistake made by an agency who, frankly, knows nothing about the consumer will somehow affect their chances at securing funds. More and more consumers are frequenting these lenders, something of a free market vote for the value of their services and methods.