Learning Center

Understanding Credit

The Credit Report
A credit report is an electronic record of your credit activities. These activities can range from borrowing to buy a home or a car or applying for a loan or credit card. Yes, that's correct-each time you apply for any loan, such as a credit card, that inquiry appears on your credit report. If you are ever late in making a monthly payment, that will also show up on your credit report.

For lenders, a credit report is used to understand how you use credit and how much of it you have available. Whether a lender is evaluating a request for a loan or a credit card company is deciding whether to give you a new credit card, each company will certainly rely on an evaluation of your credit report to influence its decision.

Unfortunately, some of us mismanage credit and pay the price: Information remains on a credit report for years and may hurt the chance of getting additional credit. Sometimes, credit reports omit steps that borrowers have taken to improve their credit, or contain errors.

Reviewing Your Own Credit
Before you apply for a credit card or loan, you should review a copy of your credit report from each of the three major credit bureaus to avoid any surprises.

A rule enacted by the Federal Trade Commission, in December of 2003, entitles you to receive a FREE copy of your credit report from each of the three major bureaus once each year. Additional copies during the year are generally available for a fee. Many financial experts suggest you review your credit at least once a year.

If you are denied credit, you will certainly want to take a closer look at your credit report to spot any errors or see if there are any omissions.

Remember that if you are denied credit for reasons based on the content of your credit report, you have the right under the FCRA (Fair Credit Reporting Act) to receive a free credit report from the issuing credit bureau within 60 days of receiving a credit-denial notice.