Tuesday, September 17, 2013

Credit Reports and Credit Scores – What You Need to Know

We all know the importance of a good credit score.  Many people consider their credit report to be their financial report card.  Whether you’re buying a new car, sending your child to college or applying for a credit card, your lender has a responsibility to evaluate the risk they’re taking by lending to you.  But what exactly does that mean and how can you find your credit report and credit score? 

Your credit report is a detailed description of how you have managed your credit in the past 7-10 years.  The better your credit report, the more likely your credit requests will be approved and you’ll receive lower interest rates.  Organizations known as credit bureaus or credit agencies, gather information from employers, landlords, public records and creditors in order to generate these reports.  The major credit bureaus in the U.S. include
Equifax, Experian and TransUnion.  After compiling this information, these credit bureaus then sell your credit information to anyone who has a legitimate need to access the information (prospective creditor, landlord, employer, insurer, etc.).

As a consumer, you have the right to access your credit report anytime.  You can obtain your credit report from a variety of sources, even though there are only three major credit bureaus.  Credit reports can be ordered online and are usually under $50 per person.  However, you should keep in mind that each credit bureau operates independently, so you may want to obtain all three reports in order to get a full picture of your credit.

Each year, you are also eligible for a free credit report from each of the three major credit bureaus through
www.annualcreditreport.com. Therefore, you can obtain up to one free credit report every four months.  According to the Federal Trade Commission, this is the only website authorized to provide you with your credit report.    In addition, the Fair Credit Reporting Act states that you are entitled to a free credit report within 60 days of any adverse action taken as a result of your credit score (e.g. denial of credit or receiving substandard credit terms from a lender).   

Credit report interpretation can vary by industry, lender and the overall economy.  Most credit bureaus have resources online to help you navigate and interpret your credit report.  In general, your report begins with a section containing your personal information.  It will also list any items of public record, such as bankruptcy, criminal conviction and foreclosures.  The report will then typically list your specific credit information, which can include open and closed accounts, account information and payment history.  Finally, most reports include a list of parties who have requested your credit report in the past 2 years.

At this point, you may be wondering about your credit score.  It’s important to mention that your credit score is not included in your free annual credit report and must be purchased separately.  Your credit score usually refers to your FICO score, which is a number based on a formula developed by the Fair Isaac Corporation.  FICO reviews the summary of your credit accounts and payment history to generate a score ranging from 300-850 (the higher, the better).  A score is generated for each of the major credit bureaus: Equifax, Experian and TransUnion.  This is the reason that your scores may differ slightly across credit bureaus and why it’s important to review each separate report.  You can purchase your credit score from a variety of online sources and the prices and packages will vary.  To learn more about the FICO scoring system, you can visit their

We strongly recommend that our clients monitor their credit report throughout the year.  There are several services that will send you daily credit bureau updates at no cost. 
Credit Karma and Credit Sesame are just two companies that will continually monitor your credit report and notify you of anything unusual (e.g. address change, new credit inquiry or account, etc.).  These alerts can help you proactively monitor your credit and correct any errors or identity theft quickly.  In fact, the Federal Trade Commission recently conducted a study revealing that one in four consumers had errors on their credit report that may affect their credit score.  It’s important that these errors are caught and resolved quickly.  If there is an error, you should contact the credit bureau immediately.

As you can see, knowledge and vigilance are two of the most important factors in monitoring your credit score.  For more information, or if we at Kemp & Associates can assist you in any way, feel free to
contact us.


All information herein has been prepared solely for informational purposes, and it is not an offer to buy or sell, or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular trading strategy.

Securities and investment advisory services offered through National Planning Corporation (NPC), NPC of America in FL & NY, Member 
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