Home Equity Loan
Credit History
Credit history or credit report is a record of an individual's or company's
past borrowing and repaying, including information about late payments and
bankruptcy. The term "credit reputation" can either be used synonymous to credit
history or to credit score.
When you fill out an application for credit from a bank, store or credit card
company, your information is forwarded to a credit bureau, along with constant
updates on the status of your credit accounts, address or any other changes you
may have made since the last time you applied for any credit.
This information is used by lenders such as credit card companies to determine
an individual's or entity's credit worthiness; that is, determining an
individual's or entity's means and willingness to repay an indebtedness. This
helps determine whether to extend credit, and on what terms. With the adoption
of risk based pricing on almost all lending in the financial services industry,
this report has become even more important since it is usually the sole element
used to choose the APR (annual percentage rate).
Obtaining your own credit report
USA
In the USA, the Fair Credit Reporting Act entitles every taxpayer to one free
personal credit report per year and per agency. The following website has been
set up for this:
www.annualcreditreport.com
Note that the name of the site is annualcreditreport and should not be
confused with a somewhat similarly named commercial site whose "free" offers may
have strings attached.
The free reports are available in all states as of September 1, 2005.
Although consumers are entitled to reports from all three major agencies at
once, it is possible to request one at a time. Staggering the reports every four
months allows the consumer to continue monitoring their credit throughout the
year.
How to improve your credit rating
Maintain a good payment record - It is very important to pay your bills on time. A lot of late payments can lower a credit history record.
(a) Control of debt - Lenders want to see that you are not living beyond your means. Experts estimate that non-mortgage credit payments each month should not exceed more than 15 percent of your after tax income.
(b) Signs of responsibility and stability - Lenders perceive things such as longevity in your home and job (at least two years) as signs of stability. Having a respected profession can improve a credit rating.
(c) Credit inquiries – Keeping credit inquiries to a minimum can help your credit rating as whenever you apply for a credit card, the lender accesses your credit rating from a credit rating agency as part of the approval process. When your credit rating is accessed, a note is made of this access on the record for two years. Credit companies perceive many inquiries on your report as a signal that you are looking for loans and will possibly consider you a poor credit risk. To keep your credit rating good, try not to let companies access your history unnecessarily.
(d) Keep cards you don't use - Although it is believed that having too many credit cards can have an adverse affect on your credit score, closing lines of credit can not improve your score and may even hurt it. The credit rating formula looks at the difference between the amount of credit you have and the amount you're using, so reducing your total credit can make the balance you carry seem larger and take points off your score.
How to restrict companies from accessing your credit history
In the USA, conditions for credit reports are set in
§ 1681b. Subsections (a)(3)(A) and
(c)(1)(B) allow companies to obtain such information e.g. if they plan to send
pre-approved credit cards. An interesting fact, which is not communicated in the
official website, is that consumers can opt out according to subsection (e):
A consumer may elect to have the consumer’s name and address excluded from any
list provided by a consumer reporting agency ... in connection with a credit or
insurance transaction that is not initiated by the consumer, by notifying the
agency ... that the consumer does not consent to any use of a consumer report
relating to the consumer in connection with any credit or insurance transaction
that is not initiated by the consumer ...
(A) through the notification system maintained by the agency ...; or
(B) by submitting to the agency a signed notice of election form issued by the
agency for purposes of this subparagraph.