Homeowner Learning Center - Credit Education, Free Information Guides, Podcasts and More

Home loans and personal credit are two topics that go hand-in-hand. When you're shopping for a home loan, an evaluation of your personal credit will inevitably be part of the process. Want to know how personal credit works? Do you have a basic understanding about your credit score, credit history and credit report? If not, read the following credit information to gain a better understanding of how personal credit affects you.

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1 Understanding Credit History

Your credit history is your track record of borrowing and repaying money. Your credit history is tracked and summarized in a document called a credit report and is used to calculate your credit score.

Who can look at your credit history in the form of a credit report? Pursuant to the federal Fair Credit Reporting Act (the "Act"), anyone with a legimitate business reason and a 'permissible purpose' (as defined by the Act) can review your credit report. Otherwise, access to your credit report is permitted only with your signed consent. Persons or companies who may typically be interested in reviewing your credit history include: lenders, landlords, employers, credit card companies, insurance companies, organizations considering your application for a government license or benefit (if the agency is required to consider your financial status), companies retained to protect you from identity theft, child support enforcement agencies and more.

Your credit history (as recorded in a credit report) includes:

• Information about loans or credit lines in your name, or for which you are a co-signer, or naming you as a user
• Details about each account, such as:
  • Date the account was opened
  • Amount of loan or credit limit and the balance owed
  • Payment terms and history
  • Closed or inactive accounts
• Public records information, such as:
  • Bankruptcies within the past 10 years
  • Tax liens
  • Monetary judgments
  • Foreclosures
  • Lawsuits
• Identification information, such as:
  • Your name
  • Your date of birth
  • Your current and previous addresses
  • Your current and past employers
  • Your social security number
  • If you're married, your spouse's name
• Inquiries:
  • A record of anyone requesting to review your credit report

What's not included in your credit report?

• Bankruptcies over 10 years old
• Charge-offs or debts placed for collection over 7 years old
• Your sex, ethnic group, religious or political preferences
• Medical history
• Criminal records

2 What are Credit Bureaus?

Credit bureaus are the companies that keep a record of your credit history in the form of a credit report and who generate your credit scores. That's why it's important to understand what credit bureaus are reporting about you. From your first credit card to your auto loan to your student loans, credit bureaus record your entire history of borrowing from financial institutions. When banks or lenders want to determine how responsible a customer is about borrowing, they turn to credit bureaus for help. Credit bureaus report your credit history and score for a fee.

The three biggest national credit bureaus - also known as credit reporting agencies - are:

• Equifax
• Experian
• TransUnion

3 What's in a Credit Report?

A credit report is a factual record of your credit history, including your debt repayments, late payments and public records such as bankruptcies and tax liens. What's an easy way to learn what kind of information is contained in your credit report? Under federal law, you can follow certain guidelines and get one free credit report from each of the major credit bureaus named above every 12 months. Also, if a company denies you a loan, insurance policy, or a job because of something in your credit report, you're entitled to a free report from the credit bureau used by the company within 60 days of being turned down.

Experian, Equifax and TransUnion maintain a record of your credit history and produce credit reports based on what's in your credit file. Your credit report generally includes:

• Personal identifying information (Social Security number, current and previous addresses and employment history)
• Summary of the number and types of accounts
• Whether your accounts are in good standing
• Payment history for each account
• Details of accounts turned over for collection action
• Information about past bankruptcy or judgments
• Inquiries made by lenders or other institutions about your credit report

The information on credit reports is used to calculate a credit score. Lenders use the credit score to make decisions about extending credit. It's important to keep track of the information in your credit report to make sure there are no errors. If you have found errors in your credit report, there are ways to correct them. Your credit report provides information on correcting errors in your file.

4 What's In A Credit Score?

A credit score is a statistical method used to predict the relative likelihood that a person will repay a credit obligation. Your credit score represents your creditworthiness, or how responsible you are about borrowing and repaying money. Credit scores are often used by lending institutions to determine whether or not to extend credit - such as car loans, mortgages and credit cards - and how much interest to charge. Credit scores typically range from 300 to 850.,. Generally, the higher your credit score, the more attractive financing terms and lower interest rate you will receive...

5 Identity Theft

Identity fraud is one of the fastest growing crimes in the US. According to Gartner Research, ID theft has increased more than 50% since 2003. Gartner reports that between 2005 and 2006 over 15 million Americans were victims of id-theft related fraud.

Identity theft can have a serious impact on your credit and finances. Victims of identity theft often discover that identity theft not only results in financial loss, but also impacts their credit score. Your credit score is one of the most important pieces of information that lenders use to evaluate your credit risk and determine whether or not to extend credit.

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