Your Credit Report – What is it used for?

We hear a lot about credit reports, but what are they used for?  In short, a credit report is a record of how you have used credit during a certain period of time. Credit is the money you have borrowed or have the potential to borrow from another, most often a bank or lender. The credit report shows who you have borrowed from, the amount borrowed, the type of credit, and your payments toward that credit over a period of time. This information can provide insight into one’s ability to pay debt over time. It can also be a reflection of someone’s character. 

Back to the question at hand, what is it used for? Anytime you borrow money from a bank or lending institution to do things like buy a car or a house, they want to know your likelihood of paying it back. To make that judgement, they will look at your credit report(s). Banks will also look at your credit report when you open an account. Similarly, credit card and mobile phone companies will do the same.

Some employers and landlords will check your credit reports as well. In some cases, you will need to sign a release for the individual or institution to access your credit report. In addition, some insurance companies look at this information. As stated earlier, it is about gauging an individual’s character and history of paying money back. 

There are also a few other entities that may check your credit report. Utility companies may use this information to determine if a deposit is required. Student loans that are held by private companies (not federal student loans) and student loans taken out by parents (PLUS loans) also look at your credit report. Collection agencies will use them when determining your ability to pay balances and government agencies with a legitimate reason can also access your credit information. And finally, anyone with a court order. 

Credit reports provide a great deal of information. It includes four sections — personal information, account information, judgements, and inquiries. Personal information includes names used, addresses, social security number, and birth date. You may find your name listed several different ways to include maiden names or abbreviated names. It may also include multiple addresses you have had, usually tied to an account you opened at some point. Judgements typically only include bankruptcies, as most credit bureaus have moved away from civil judgements. Account information was discussed earlier, but inquiries are also included on a credit report. Inquiries occur when someone requests a copy of your credit report. There are soft inquiries and hard inquiries. We can explain that in another blog, but in the meantime, here is a recent article from Forbes on the subject.   

In closing, let me share a reliable resource for more information. The Consumer Financial Protection Bureau has a wealth of information about Credit Reports and Scores. In addition, if you are a victim of Identity Theft, you can visit IdentityTheft.gov by the Federal Trade Commission. 

Cash or Charge? Credit For Young Adults and Teens

Credit is the ability to borrow money to purchase goods and services.  A credit card gives you access to credit, and when a credit card is used to make purchases, the amount spent becomes borrowed debt that must be repaid. 

A credit card can be an easy way to pay for things you want or need, especially if you don’t have enough money with you at the time.  However, credit cards can also create the temptation to buy things you might regret spending money on later. Saving money first before buying an item reduces the risk of overspending, can cost much less, and could even earn you a little money, but also means a delay in making the purchases you want.

Usually, when the full balance of a credit card is paid off when the bill arrives, there is no additional cost.  However, when the amount borrowed is paid incrementally, interest will be added to the amount due, and interest can be costly.  

Here are some things to think about before getting your first credit card, or adding another. 

Some advantages:

  • A credit card, used wisely, can be a good way to establish credit
  • Credit is useful if you need to make an emergency purchase
  • Credit allows you to buy expensive items without having to pay for it all at once
  • A credit card allows you to avoid carrying cash with you
  • Some credit cards offer bonuses, such as cash back or discounts on travel

Some Disadvantages:

  • You might overspend
  • People tend to buy on impulse, without shopping around or check prices as carefully
  • You will pay more for what you buy when interest is considered
  • Owing money can be stressful
  • Making minimum payments required by credit card companies can mean taking years to pay off the items you are buying

Some things to ask yourself before using credit to borrow money:

  • Do I really need this now, or can I wait and save for it?
  • How much will this cost me in interest? Is it worth it?
  • How long will it take me to re-pay?  Will I need to buy more before I pay it off?
  • Can I afford the monthly payment?

Credit, and having a credit card, are privileges that are kept by demonstrating the willingness and ability to pay off any debt incurred. It is important to think through the use of credit and credit cards, and make smart decisions before obligating yourself to pay back large sums of money.

Check Your Credit

There are three national consumer reporting companies — Equifax, TransUnion, and Experian.  As a consumer, you must ensure the data about you maintained by consumer reporting companies is accurate and complete.

Due to the COVID-19 pandemic, the three national credit reporting companies are offering free weekly online credit reports through April 2022, and individuals can request free copies of those reports by going to https://www.annualcreditreport.com/index.action.  

Other companies collect your information and prepare consumer reports for other agencies.  As a consumer, you have the right to see those reports as well.

View the link https://www.consumerfinance.gov/consumer-tools/credit-reports-and-scores/consumer-reporting-companies/companies-list/ to see a list of consumer reporting companies. These companies use reports to inform decisions about providing you with credit, employment, residential rental housing, insurance, and other decision-making situations.  

Who can see your consumer reports?

Consumer reporting companies collect information and provide reports to other companies about you, but they must follow legal restrictions. Generally, they can provide consumer reports and risk scores to businesses such as: 

  • Debt buyers and collectors
  • Lenders (including those that offer credit cards, home, payday, personal, title, auto including auto leasing, student loans, and security deposit financing and lease guarantees on home rentals)
  • Insurance companies
  • Employers, volunteer organizations, and government agencies to determine eligibility for government assistance (employment screening)
  • Landlords and residential real estate management companies (tenant screening)
  • Banks, credit unions, payment process (check screening), and retail stores that accept personal checks
  • Companies that market and sell products and services specifically to lower-income consumers and subprime credit applicants 
  • Communications and utility companies
  • Retail stores for product return fraud and abuse screening; as well as retail store that offer financing, such as appliance and rent-to-own businesses
  • Gaming casinos that extend credit to consumers and/or accept personal checks

Check your reports before making financial decisions

If you are applying for a job, an insurance policy, or a lease, you should fact-check your background screening reports to ensure there are no errors. 

You have the right to dispute the information in your reports

If you find information in your consumer reports that you believe is inaccurate or incomplete, you have the legal right to dispute the report’s content with the consumer reporting company and the company that shared the information with the consumer reporting company, such as your lender. Under the FCRA (Fair Credit Reporting Act), companies must conduct, free of charge, a reasonable investigation of your dispute. 

To learn more about financial wellness programs at University of Maryland Extension, go to https://extension.umd.edu/programs/family-consumer-sciences/financial-wellness.

Build and keep a good credit score

Many people confuse credit scores with a credit report.  A credit score predicts how likely you are to pay back a loan on time.  Companies use a mathematical formula called a scoring model to create your credit score from the information in your credit report. These scores usually range from 300 to 850. Banks, credit card companies, and lenders may use different credit scores to make decisions about offering you credit. Two of the most commonly used credit scores are FICO (calculated using formulas from Fair Isaac Corporation) and VantageScore (calculated using formulas from VantageScore Solutions). FICO shares this information with the public about what goes into its scores. 

How are FICO Scores Calculated? | myFICO | myFICO

The payment history tracks whether you’re paying your bills on time. The amounts owed tracks what you owe, including debts that you are paying down over time.  The length of credit history tracks how long you’ve had credit accounts. The longer the history, the more positive effect on your scores. New credit is tracked by measuring the credit inquiries about you made by creditors and others.  Lastly, it’s considered a good thing to have a mix of credit, such as a mortgage, an auto loan, and not too many credit cards.  These are some guidelines that can help you build a strong credit score.  

  • Pay your loans on time, every time. One way to make sure your payments are on time is to set up automatic payments or set up electronic reminders. If you’ve missed payments, get current and stay current.
  • Don’t get close to your credit limit. Credit scoring models look at how close you are to being “maxed out,” keep your balances low compared to your total credit limit. If you close some credit card accounts and put most or all of your credit card balances onto one card, it may hurt your credit score if this means that you are using a high percentage of your total credit limit. Experts advise keeping your use of credit at no more than 30 percent of your total credit limit. Paying off the balance each month helps get you the best scores.
  • Long credit history will help your score. The more experience your credit report shows with paying your loans on time, the more information there is to determine whether you are a good credit recipient.
  • Only apply for credit that you need. Credit scoring formulas look at your recent credit activity as a signal of your need for credit. If you apply for a lot of credit over a short period of time, it may appear to lenders that your economic circumstances have changed negatively. 
  • Fact-check your credit reports. If you spot suspected errors, dispute them. If you have old credit card accounts you are not using, keep an eye on them to make sure that an identity thief is not using them.

Planning Your Finances for an Uncertain Future

Couple managing the debtCoronavirus has changed many people’s financial circumstances quickly. A loss of income can put your services, or even your home in jeopardy, but companies are working with customers right now to help ensure their well-being. 

Here are a few steps you can take if your income has decreased suddenly.  

Contact your lenders, loan servicers, and other creditors

If you are not able to pay your bills on time, check their websites to see if they have information that can help you. The Consumer Financial Protection Bureau and other financial regulators have encouraged financial institutions to work with their customers to meet their community needs. If you can’t make a payment now, need more time, or want to discuss payment options, contact your lenders and servicers to let them know about your situation. Being behind on your payments can have a lasting impact on your credit. Credit card companies, banks, and lenders may be able to offer you a number of options to help you. This could include waiving certain fees like ATM, overdrafts, and late fees, as well as allowing you to delay, adjust, or skip some payments. 

Male Shows Empty Pockets Moneyless ConceptWork with housing and credit counselors to understand your options

The U.S. Department of Housing and Urban Development (HUD) has approved housing counselors who can discuss options with you if you’re having trouble paying your mortgage loan or reverse mortgage loan.  

Contact your mortgage servicer if you are having trouble paying your mortgage

Reputable credit counseling organizations are generally nonprofit organizations that can advise you on your money and debts, and help you with a budget.  Some of the counselors are also able to negotiate with creditors.  

Trouble paying your student loans?

If your loan is held by the federal government, your loan payments are postponed with no interest until September 30, 2020.  For other kinds of student loans (such as a federal student loan held by a commercial lender or the institution you attend, or a private student loan held by a bank, credit union, school, or other private entity) contact your student loan servicer to find out more about your options. 

Flat lay of earning money conceptTrouble paying your credit cards?

Contact all credit card companies that you owe and let them know of your financial hardship and that you are unable to make a payment. Additionally, work with a reputable nonprofit credit counseling organization that can advise you on your money and debts, and help you with a budget. Some may also help you negotiate with creditors.  

Stay on top of your credit reports

Due to COVID-19 pandemic, the three national credit reporting companies are offering free weekly online credit reports through April 2021.  Use the link  https://www.annualcreditreport.com/index.action to request your copies.  

Equally important, through December 31, 2026, all U.S. consumers can also get six free credit reports every 12 months from Equifax by establishing a “myEquifax” account online or by calling 866-349-5191. That is in addition to the one free Equifax report (plus your Experian and TransUnion reports) you can get from AnnualCreditReport.com.

Time to Take a New Look at Your Money Habits

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Pay down that old debt in the coming New Year!

The New Year holiday creates a feeling of starting fresh and encourages us to set new goals.  While diets come to mind, setting new financial goals should be on the top of our lists. As you reflect on the past year, focus on your experiences – build on what worked and what didn’t to shape the new year’s money habits.  Here are some ideas to consider as you set your financial goals for the New Year. 

New Savings Account for the New Year

Think about what you want to save for the coming year and commit to opening a savings account to reach that goal. Examples can be creating an emergency fund or setting money aside for your children’s future college tuition. Decide on the type of savings account that will meet your goal and commit to depositing a set amount on a regularly to get into the habit of saving.  For example, if you open a basic savings account, deposit $25 every month and sign up for direct deposit or automatic withdrawals from your checking account. Increase the amount once you are comfortable with saving.

  Visit https://www.fdic.gov/consumers/consumer/news/september2018.pdf and https://www.investor.gov/introduction-investing/basics/save-invest for information about  various savings accounts.  

Pay Down Old Debt in the New Year

Confronting your debt and thinking about how to pay it off can be scary and overwhelming, but you should use the New Year to face your fears. First make a list of your debts, noting the monthly payment, current balance, and interest rate, and make a plan to start paying them down. Experts recommend focusing on either debt with the highest interest rates or debts with the lowest balances to pay off.  You will likely save more money paying off debts with the highest interest rates but it may be faster to pay off the smallest balances first. Whichever method you choose, start by adding a small amount to one of your current payments.  

Visit https://www.fdic.gov/consumers/consumer/news/cnfall17/debt.html and https://www.consumer.gov/debt#!what-to-know for additional information.  

Get Organized

Keeping your finances organized will help you control your money and achieve your financial goals. Some basic tasks to help you start organizing include making a budget, tracking your spending, and putting a system in place to ensure you pay your bills on time every month.  Monitor your credit card and bank statements for any unexpected fees or unusual activity. The easier you find mistakes or unauthorized transactions, the easier it is to correct them. As you organize your finances, start small by picking one organizational task and focus on that task for one month before adding another. For example, start by making sure your bills are paid on time by setting up automatic bill pay from your bank account. 

For more information on managing your finances, explore our Financial Checkup at https://extension.umd.edu/finance.

Get A Handle On Your Debt

Debt is money that you owe. Whether you took out a loan, used a credit card, or got behind on a bill payment, it’s debt. When debt feels like a barrier to your goals it can be hard to face, but it’s important to remember that with a little planning, you can reverse your situation.

One simple way to address your debt is to create a budget.

  • First gather your bills and receipts to see how much you typically spend on things like groceries, entertainment, transportation, clothing, and everyday expenses.
  • Then add up all your paychecks and any other income. Subtract your expenses from your total income.
  • Look for expenses that you can reduce each month so that you can have more money left over.
  • When you are done, make a budget and try to stick with it.

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Being in debt can be scary. Setting financial goals can not only help motivate you, but it’s an important step to becoming financially secure.

Has your debt already gone to a debt collector?
Talk to the collector at least once, even if you don’t think you owe the debt or cannot repay it immediately. By doing so, you can confirm whether it’s really your debt and find out more information. Additionally, a collector cannot:

  • Contact you before 8 AM or after 9 PM., unless you agree to it
  • Contact you at work if the collector is told you’re not allowed to get calls there
  • Tell anyone about your debt
  • Harass or lie to you

Are you having trouble paying your mortgage?
Contact your lender immediately. It’s best not to wait because a lender could foreclose on your house.  Most lenders will work with you if they believe you’re acting in good faith and your situation is temporary. Your lender may be willing to lower or suspend your payments for a short time or even extend your repayment period to reduce your monthly payments. Before you agree to a plan, find out about any extra fees or other consequences.

Are you having trouble paying your car debt?
If you know you’re going to default, you might be better off selling the car yourself and paying off the debt.  You’ll avoid the costs of repossession and a negative entry on your credit report.

Are you having trouble paying your student loan?
If you have federal loans, the Department of Education has different programs that could help. Applying for these programs is free. You can find out more about your options, and how to get out of default, by going to the US Department of Education’s Studentaid.org or by contacting your federal student loan servicer.

When debt feels like a barrier to your goals, it’s important to remember that these tools can help you take the first step. If you still feel stuck, contact your local Extension office and ask to speak with a Financial Wellness Educator.

How to Protect Your Personal Information After a Data Breach

It seems like a new data breach occurs every week, making us worry about the safety of our information. Restaurants, retailers (brick and mortar, and online), apps, and even airlines have all been targets of data breaches within the past year. In 2017, Equifax estimated that the data breach of their systems could have affected 145 million people. There were many questions after the breach, but the one that became most important for many people was, “What can I do now to protect my identity?

A good start is to place an alert on your credit file. There are three different types of alerts that can help you monitor the safety of your identity. Each of them involve working with the three credit bureaus (Equifax, Transunion, or Experian) to monitor any attempts made to use your information.

The first is a fraud alert, which makes it difficult for someone to open an account in your name. This is typically used when someone finds out that their identity has been compromised. You would need to notify any of the credit bureaus (don’t worry, they notify the other two) that you would like to place an alert. The alert is free and lasts for 90 days. Then, if someone uses your information to try and get a credit card (for example), the credit card company will check with the credit bureau. The alert lets the company know that they should do some additional verification before giving the person the credit card.

Online Shopping_Pexels-34577
Online shopping may be growing because of the convenience, but so is the risk for stolen data.

The second is a credit freeze. With a freeze, no one will be able to access your credit report, which is required before opening a new line of credit. To set up a freeze, you will need to contact each of the three credit bureaus. You can unfreeze your account whenever you need to, but there is typically a fee attached to doing so. In Maryland, there is no fee to freeze your credit, but there is a $5 fee to unfreeze it, unless you are a victim of identify theft, in which case, it would be free. You will need to unfreeze your credit if you need a new loan or credit card, or if someone needs your credit report as part of a background check. You will receive a PIN any time you freeze or unfreeze an account.

Finally, there is a credit lock, which is similar to a credit freeze, but provides a little more convenience. A credit freeze requires a few steps to freeze or unfreeze your credit report. With a credit lock, you control whether or not your report is frozen from your smartphone and it does not require that you remember a PIN. This makes it easier to unlock your report when you need to do so. However, it requires you to work with the credit bureau, which can include a monthly fee.

The most important thing to remember is that, if you are concerned that someone accessed your personal information, you should know how to protect yourself and who to call.

This post was co-written by Carrie.