A credit score is a numerical expression based on a level analysis of a person's credit files, to represent the creditworthiness of an individual. A credit score is primarily based on a credit report, information typically sourced from credit bureaus.
The law allows consumers who are unfairly labelled as having bad credibility to dispute any of the questionable items in their consumer reports with the three credit reporting bureaus, Equifax, Experian and TransUnion. Any negative listing you feel may be inaccurate, untimely, misleading, incomplete, ambiguous, unverifiable, biased or unclear (in other words, “questionable”) can be disputed. Which means, anything that you believe is inaccurate or did not do can be challenged and DELETED off your credibility report.
Top 3 Credit Bureaus: How They Work and What They Know About You
Equifax, Experian, and TransUnion can differ in the information they collect
Equifax, Experian, and TransUnion, the top three U.S. credit bureaus, are private companies that collect and sell credit information on individual consumers to lenders and others. While the three bureaus have similar functions, they also have some differences, including in the information they report.
Equifax, Experian, and TransUnion can differ in the information they collect
Equifax, Experian, and TransUnion, the top three U.S. credit bureaus, are private companies that collect and sell credit information on individual consumers to lenders and others. While the three bureaus have similar functions, they also have some differences, including in the information they report.
•They compile credit reports on individuals, which they sell to prospective lenders and others.
•The three bureaus can have somewhat different information in their reports, depending on which creditors provide it to them.
•The information in your credit reports is also used to assign credit scores to you.
Credit reporting bureaus are not the same as credit rating agencies, which evaluate the finances of companies and countries.
•The three bureaus can have somewhat different information in their reports, depending on which creditors provide it to them.
•The information in your credit reports is also used to assign credit scores to you.
Credit reporting bureaus are not the same as credit rating agencies, which evaluate the finances of companies and countries.
What Are Credit Bureaus?
Credit bureaus are companies that compile credit histories on individual consumers, primarily as a way for prospective lenders to assess their creditworthiness. The detailed credit reports that they create also provide the information from which credit scores are derived. Credit scores are three-digit numbers, typically from 300 to 850, and they can affect whether you qualify for a loan or a credit card. They can also influence the lender’s decision on the size of a loan and the interest rate that you will have to pay.
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Credit bureaus are private companies that are regulated under the federal Fair Credit Reporting Act (FCRA) in terms of how they collect, disburse, and disclose consumer information. A credit bureau’s business model relies on information supplied to it by the banks, finance companies, retailers, and sometimes landlords with which you do business. The credit bureau compiles that information on you, analyzes it, and sells it to lenders and others.
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Credit bureaus are private companies that are regulated under the federal Fair Credit Reporting Act (FCRA) in terms of how they collect, disburse, and disclose consumer information. A credit bureau’s business model relies on information supplied to it by the banks, finance companies, retailers, and sometimes landlords with which you do business. The credit bureau compiles that information on you, analyzes it, and sells it to lenders and others.
How the Credit Bureaus Collect Information on You
All three credit bureaus collect mostly the same basic information about consumers. This includes personal data, such as name, address, Social Security number, and date of birth. It also includes credit history, including debts, payment history, and credit application activity. It is common practice for the credit bureaus to collect information on federal and private student loans and from housing lenders.
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If you are delinquent in making student loan payments, Sallie Mae can report that to a credit bureau—typically after you are 45 days late. Federal loans provide more leeway, allowing 90 days to pass before the servicer will file a report of a delinquency.
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The Internal Revenue Service (IRS) doesn’t report income tax payments or overdue taxes to the bureaus. However, if a taxpayer does not pay their tax debt in a reasonable amount of time, or if they owe a lot of back taxes, then the IRS might file a federal tax lien (a legal claim against a taxpayer’s property) with the local county clerk’s office. A tax lien filing is considered public information, and the bureaus can find it through third-party research.
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Note that not all lenders report credit activity to every credit bureau, so one bureau’s credit report can differ from another credit bureau’s. Even when lenders report to all three bureaus, their information may appear on credit reports at different times simply because the bureaus compile data at different times of the month.
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If you are delinquent in making student loan payments, Sallie Mae can report that to a credit bureau—typically after you are 45 days late. Federal loans provide more leeway, allowing 90 days to pass before the servicer will file a report of a delinquency.
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The Internal Revenue Service (IRS) doesn’t report income tax payments or overdue taxes to the bureaus. However, if a taxpayer does not pay their tax debt in a reasonable amount of time, or if they owe a lot of back taxes, then the IRS might file a federal tax lien (a legal claim against a taxpayer’s property) with the local county clerk’s office. A tax lien filing is considered public information, and the bureaus can find it through third-party research.
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Note that not all lenders report credit activity to every credit bureau, so one bureau’s credit report can differ from another credit bureau’s. Even when lenders report to all three bureaus, their information may appear on credit reports at different times simply because the bureaus compile data at different times of the month.
How Lenders Use Credit Reports
Suppose you apply for a loan, line of credit, or credit card from a bank or other lender. That lender will almost certainly perform a credit check, requesting a report on you from at least one of the three major credit bureaus. However, it does not have to use all three.
The lender might have a preferred relationship or value one credit reporting system over the other two. Most lenders refer to only one report from a single credit bureau to determine an applicant’s creditworthiness. Mortgage companies are among the exceptions. A mortgage lender examines reports from all three credit bureaus because of the large amount of money involved.
All of these credit inquiries are noted on your credit report, but they only show up for the bureaus whose reports are pulled. For example, if a credit inquiry is only sent to Experian, then Equifax and TransUnion do not know about it.
The lender might have a preferred relationship or value one credit reporting system over the other two. Most lenders refer to only one report from a single credit bureau to determine an applicant’s creditworthiness. Mortgage companies are among the exceptions. A mortgage lender examines reports from all three credit bureaus because of the large amount of money involved.
All of these credit inquiries are noted on your credit report, but they only show up for the bureaus whose reports are pulled. For example, if a credit inquiry is only sent to Experian, then Equifax and TransUnion do not know about it.
What’s a credit inquiry?
Simply put, a credit inquiry is a credit check. Inquiries happen when there is a legally permitted request to see your credit report from a company or person.
What’s a Hard inquiry?
A hard inquiry also known as a (hard pull) occurs When a lender or company requests to review your credit report as part of the loan application process, that request is recorded on your credit report as a hard inquiry, and it usually will impact your credit score.
What’s a soft inquiry?
A soft inquiry, sometimes known as a soft credit check or soft credit pull, happens when you or someone you authorize (like a potential employer) checks your credit report. They can also happen when a company such as a credit card issuer or mortgage lender checks your credit to preapprove you for an offer.
Hard inquiry vs soft inquiries
The defining factor is that a soft inquiry occurs when someone is only seeking credit information about you (but not looking into making you a loan), while a hard inquiry happens when a lender is deciding whether to make you a loan.
Secured credit cards vs. unsecured credit cards
What is a secured credit card?
A secured credit card is nearly identical to an unsecured credit card, but you're required to make a minimum deposit (known as a security deposit), to receive a credit limit. The deposit is typically $200, but may be higher or lower depending on the secured card you open. Secured cards are often marketed toward people looking to build or rebuild their credit. As a result, the security deposit acts as collateral if you default on payments, but it's completely refundable if you upgrade to an unsecured card or pay off your balance in full and close your account.
A secured credit card is nearly identical to an unsecured credit card, but you're required to make a minimum deposit (known as a security deposit), to receive a credit limit. The deposit is typically $200, but may be higher or lower depending on the secured card you open. Secured cards are often marketed toward people looking to build or rebuild their credit. As a result, the security deposit acts as collateral if you default on payments, but it's completely refundable if you upgrade to an unsecured card or pay off your balance in full and close your account.
How secured credit cards work
After you make the minimum security deposit, you can start using your secured card just like any other credit card. You can spend up to your credit limit, which is often equal to your security deposit. So a $200 security deposit equals a $200 credit limit. If you want more spending power, you'll need to deposit more money. The maximum amount you can deposit varies by secured card, but can be up to $2,500.
Some secured cards, such as the Capital One Platinum Secured Credit Card, may offer a higher credit limit (with no additional deposit required) after you make the first five monthly payments on time, which is also a great incentive to practice responsible credit behavior.
You will incur interest charges if you carry a balance month to month, so make sure you pay your bill in full and on time, which also helps your credit score.
Actions you take with a secured card are reported to the three main credit bureaus (Experian, Equifax and TransUnion), so it's crucial to avoid maxing out your card and paying off your balance each month.
Some secured cards, such as the Capital One Platinum Secured Credit Card, may offer a higher credit limit (with no additional deposit required) after you make the first five monthly payments on time, which is also a great incentive to practice responsible credit behavior.
You will incur interest charges if you carry a balance month to month, so make sure you pay your bill in full and on time, which also helps your credit score.
Actions you take with a secured card are reported to the three main credit bureaus (Experian, Equifax and TransUnion), so it's crucial to avoid maxing out your card and paying off your balance each month.
What’s a unsecured credit card
But what does “unsecured” really mean? How does it differ from a secured credit card? And how do you know which one is right for you?
Key takeaways
•Most credit cards are unsecured, meaning they don’t require collateral, such as a security deposit, to access a credit line.
•Unsecured credit cards may come with higher credit limits and lower interest rates compared with secured credit cards.
•Like a secured credit card, an unsecured card can be a useful tool for building credit when used responsibly.
•Having good or excellent credit scores might make it easier to qualify for an unsecured card with better terms, such as higher credit limits and lower interest rates.
Key takeaways
•Most credit cards are unsecured, meaning they don’t require collateral, such as a security deposit, to access a credit line.
•Unsecured credit cards may come with higher credit limits and lower interest rates compared with secured credit cards.
•Like a secured credit card, an unsecured card can be a useful tool for building credit when used responsibly.
•Having good or excellent credit scores might make it easier to qualify for an unsecured card with better terms, such as higher credit limits and lower interest rates.
Secured credit cards vs. unsecured credit cards
Trying to decide between a secured or unsecured card? Your credit score might play a big role in your decision-making.
If you have less-than-stellar credit, a secured credit card may be the better option since they're typically easier to qualify for with poor credit (scores below 580) or no credit.
If your credit is already good or excellent (scores 670 and greater), an unsecured card can provide you with better benefits that may earn you rewards in common spending categories, such as dining, gas and groceries, Global Entry or TSA PreCheck credit and added entertainment perks. Check out our round up of the best credit cards.
If you decide that a secured card is the best option, consider some of the best secured credit cards listed below. Once you improve your credit, you can transition to an unsecured card.
If you can't afford the $200 security deposit, you should look to other ways to raise your credit score, including becoming an authorized user on someone else's account. You might also want to look for a card geared toward consumers with low credit that don't require a deposit. CNBC Select has a few suggestions in our roundup of the best cards for building credit.
If you have less-than-stellar credit, a secured credit card may be the better option since they're typically easier to qualify for with poor credit (scores below 580) or no credit.
If your credit is already good or excellent (scores 670 and greater), an unsecured card can provide you with better benefits that may earn you rewards in common spending categories, such as dining, gas and groceries, Global Entry or TSA PreCheck credit and added entertainment perks. Check out our round up of the best credit cards.
If you decide that a secured card is the best option, consider some of the best secured credit cards listed below. Once you improve your credit, you can transition to an unsecured card.
If you can't afford the $200 security deposit, you should look to other ways to raise your credit score, including becoming an authorized user on someone else's account. You might also want to look for a card geared toward consumers with low credit that don't require a deposit. CNBC Select has a few suggestions in our roundup of the best cards for building credit.
Authorized User
What is an authorized user ? And how can a consumer benefit from becoming an authorized user?
An authorized user is someone who's been added to a credit card account by the card's owner, also known as the primary cardholder. The authorized user can make purchases with the credit card as if it were their own. However, the responsibility to pay any charges remains with the primary cardholder. Typically when added as an authorized user a consumer usually sees an increase in there consumer report as longs as the primary borrower holds a positive payment history for that account