What is Credit?


Credit in this case does not mean "Credit Card", it means how you borrow money and how you repay it. Lets go over some brief terminology and general points.

 

FICO =  Your Credit Score

Years ago, the Fair Isaac COmpany (http://www.fairisaac.com/) created the formula to generate a credit score based on these 5 things:

  1. How many credit accounts reported currently open and reported in total

  2. The balance reported that you owe on each account individually and in total

  3. The number of years reported that you have had credit for

  4. The reported frequency of how your bills are paid (on-time, late, or not at all)

  5. The type of credit account reported that you have

Their model was named after them: FICO stands for the Fair IsaacCOmpany


CREDITOR = credit card companies, banks, and other companies that issue you loans or credit

BUREAU = the 3 national credit bureaus that report the information on the above 5 items from creditors so that other creditors can see a history on you

CREDIT REPORT = Several sheets of paper printed from a computer system that contains information on you including your name(s), address(es), birth date(s), social security number(s), and account history for the last 10 years that is reported by creditors. Some reports may also contain a FICO (or “credit score”)



So How Does The Credit Reporting System Work?

Each month or so, “creditors” send balance and payment information on your credit cards, loans, and mortgages accounts to the bureaus to store in a central repository of data.

The bureaus keep this data stored in massive computer systems.

When a creditor (or you) want to see your credit history, they request a “Credit Report”. By entering your Name, Social Security Number, Address and sometimes Birth date, the computer systems can pull up all the data linked to those numbers almost instantly and print it to an electronic or paper report.

Creditors usually do not want to spend excessive time reading and analyzing all the accounts on your credit report since it would take a lot of time and human error could miss something important, so creditors usually request a “FICO” score (or Credit Score).

When the credit report is requested, the FICO formula is run on all the data in your file using the 5 factors above and a score is generated for you. 

There are two ways to request a FICO, “risk based” and “Non risked based”. 

The non-risk based score is between 350(bad) and 950(Excellent). 

The risk based score is between 450(bad) and 850(excellent). 

Risk based simply means an extra evaluation is done to “predict” if you might possibly have a 90 day or later payment in the next 24 months based on your past history, and current information when compared to all other peers in the U.S. Because of the comparison to other U.S. peers, the equation is always changing month to month. A credit score you had a year ago, or even last month, can change significantly depending on your reported history and everyone else’s reported history. Also, one side note, you are not actually compared to everybody, you are first categorized into 1 of 10 possible “cards”. People a grouped based on similar elements of their data, then the risk based FICO score is calculated.

 

So what does this all mean?

Well, if you have looked closely at the messages above, you will see that the word “reported” has been italicized everywhere. This is because your FICO score is purely based off of “Reported” information. Information that Creditors report to Bureaus, and information Bureaus Report back to other creditors.

So who is to say that the information “reported” is correct?

Ask yourself this question, have you ever applied for a card, or loan or anything and filled out an application and told someone over the phone your name and then when you got the card or paperwork, your name was spelled different or just plain incorrect? What if they got the address wrong, or the birth date, or even worse, your social security number was wrong?

If this is information was already transmitted to the Bureaus, then you have an “alias” name on your account. An alias name can link you to another person data mistakenly.

Now going back to what we just learned, if someone pulls your data, and it is linked to  someone else’s account (mistakenly) or, possibly, someone else has an alias and their information is linked to yours, then when this FICO formula runs, do you think the outcome will be accurate? 

 

So What Can I Do About It?

You can do what the Federal Trade Commission of the United States Government (http://www.ftc.gov/) gives you the right to do. Investigate inaccurate, erroneous, or obsolete information for free. All you need to do is learn the laws, submit paperwork, wait about 30 days for your 1st answer and continue investigating based on the results.  (see our link Public Service Announcement. )

You are entitled, and encouraged, to get a Free copy of your credit report each year (with a FICO score will cost about $5-$9 extra each bureau)

You should review each line and look for inaccurate, erroneous, or obsolete information.

You can write a letter to the bureaus stating what is wrong and why it should be investigated.

By Law, the bureaus must investigate any claim that you personally feel is inaccurate or can be proven different with paper work. Side note, this does not mean you can remove your entire credit history simply because you think it is inaccurate. Creditors get 30 days to research their records to provide the records that support the data they sent to the Bureaus. If the creditor, or bureau, cannot provide proof why this information existed in the first place, you are entitled to have the incorrect information removed.

 

What Happens After I Remove Incorrect Items?

When new creditors request a Credit Report on you, the data they use to calculate a FICO score will have more accurate information and your score will be more reflective of the truth.

 

How did This Happens In the First place?

How many times have you heard, "Don't worry Mr.& Mrs. Jones, I'll take care of that. It won't show up on your credit."  Only to find out months (or even years) later when you are buying or refinancing a home or getting a new car or insurance, that the mistake still exists! So, how do you get that information corrected? When you call back to the same customer service number, either the Representative you spoke to no longer works there or there is no record in the system of the previous conversation the new representative can find. In some rare cases, you may even find the company doesn't exist anymore or that account doesn't exist anymore.

 

Why does it still show up on your credit report?

You, like many others, have fallen victim to the credit reporting nightmare that many people face. You probably have asked:

  • Who is right and who is wrong?

  • And if I'm right, who do I tell?

  • And how do I tell them?

  • What do I do if the company that made the mistake is wrong and doesn't exist anymore?

  • What do I do if just keep getting the run around from the people who are responsible? 

Hearing the numerous complaints over and over from everyone, and through extensive learning on our part, we came up with a way to help everyone who needs it. Getting the knowledge in your hands one of the things we teach you.

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