Credit Reports And Scores
Before a company lends you money, it wants to know if you are capable and willing to pay the debt. You can do this by reviewing your finances, including your bank account balances. You can also view your debt payment history by reviewing your credit reports.
Credit reports, with today’s formalized system, have not always been around. Before, people lived in small towns, and the merchant in the supermarket or the supply store knew you or knew your family and sold you goods on credit (which means, receive the products now and pay for them later), based on your reputation.
However, as cities grew and travel became easier, businesses needed a way to assess a stranger’s ability and willingness to repay a loan. Some types of businesses worked together to create trusted buyer lists. For example, it could be a trade association for all lumber sellers in a city, and they would keep a list of all contractors who did or did not pay their bills on time.
In the middle of the 19th century, a new industry was born – credit reporting. Credit companies investigated individuals and businesses, kept track of their payment histories, and sold access to credit reports. Today, international credit bureaus use even more advanced technology to collect information, organize data, and sell credit reports around the world.
Why is that important to small business owners? Because a good credit history could help you:
- Negotiate with your suppliers
- Payless for insurance
- Qualify for lower interest rates and higher loan limits when you borrow money
- Take out a business loan without impacting your finances
For many small business owners, your personal and business credit can be important to the financial management Link to Financial Management of your business. However, the personal and business credit systems can be completely separate; so it’s a good idea to learn how both systems work.
Most information on credit reports is voluntarily provided by other companies to the credit bureau. For example, a credit card issuer could choose to report their expenses to consumer agencies, or a supplier to your small business could report to the business credit agency if your business did not pay for supplies on time.
Many creditors report positive and negative activity related to your account; for example, payments on time and non-payment. There are some exceptions. Generally, payments for utilities, telephone, Internet, and rent are not reported to the agencies if you pay the bills on time. However, if you stop making payments and your account is sent to collections, the collection account could be reported to the agencies and affect your credit scores.
The agencies collect all the information from different types of creditors and public records and then combine the information associated with an individual or business to generate a credit report.
Credit reports can be important for two reasons: First, they are the basis for credit scores and can give lenders and other businesses an easy way to evaluate you or your business.
The credit report itself also contains a lot of information that lenders can review before approving or rejecting your application. Companies can review the credit reports of both companies before deciding to work together. As a result, even though you may have a credit score, you can be denied a loan or contract based on something that appears on your credit history.
Personal credit reports
There are three major national consumer credit bureaus in the US: Equifax, Experian, and TransUnion. Federal laws and agency policies dictate what may or may not be on your credit report, limit who can view your credit report, guarantee your rights to access copies of your reports, and allow you to dispute any errors you find.
Your credit reports contain information about you and the accounts that you have opened in your name, namely:
- Identification information. Personal information can include your name, Social Security number, date of birth, and address. The credit report can also contain information about old addresses and current and former employers.
- Accounts. A list of all your credit accounts that are reported to the agency, including the different types of loans and credit cards. Credit accounts, also called ‘tradelines’, could contain a variety of information, including the date the account was opened, your current balance, and your account’s payment history.
- Collections. A company can send your account to collections, thus giving another department or different company the job of collecting your debt if you haven’t paid your bills. The collections account may be located in another section of your credit report.
- Credit checks. When someone checks your credit, a record of the credit check (called a query) is added to your credit reports.
- Public records. The only information that credit bureaus actively collect is public data from the court system, such as bankruptcy filings.
Some information will never be part of your credit reports, such as your religion, ethnicity, or income. Additionally, negative information, such as late payments or bankruptcy, should be removed from your credit reports after seven to ten years.
You can request a free copy of your credit report from each agency once a year at AnnualCreditReport.com. While many times the credit reports from all three agencies are similar, they may not be identical. For example, You may have a loan from a bank that only reports your payments to Experian and TransUnion. As a result, this account will not appear on your Equifax credit report.
If you find an error in one of your reports, such as an account that you did not open, you can file a dispute with the agency and the agency must investigate your claim and verify, correct or remove the disputed item.