|
Credit history or credit report is, in
many countries, 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.
In the U.S., when a customer fills out an application for credit from a
bank, store or credit card company, their information is forwarded to a
credit bureau. The credit bureau matches the name, address and other
identifying information on the credit applicant with information retained by
the bureau in its files.That's why it's very important for creditors,
lenders and others to provide accurate data to credit bureaus. [1]
This information is used by lenders such as credit card companies to
determine an individual's credit worthiness; that is, determining an
individual's willingness to repay a debt. The willingness to repay a debt is
indicated by how timely past payments have been made to other lenders.
Lenders like to see consumer debt obligations paid on a monthly basis.
There has been much discussion over the accuracy of the data in consumer
reports. However, the only scientifically researched studies that include
sample sizes large enough to be valid have concluded that by and large the
data in credit reports is very accurate. [2] [3] The credit bureaus point to
their own study of 52 million credit reports to highlight that the data in
reports is very accurate. The Consumer Data Industry Association testified
before Congress that less than two percent of those reports that resulted in
a consumer dispute had data deleted because it was in error.[4]
If a consumer disputes some information in a credit report, the credit
bureau has 30 days to verify the data. Over 70 percent of these consumer
disputes are resolved within 14 days and then the consumer is notified of
the resolution. [5] The Federal Trade Commission states that one large
credit bureau notes 95 percent of those who dispute an item seem satified
with the outcome.[6]
The other factor in determining whether a lender will provide a consumer
credit or a loan is dependent on income. The higher the income, all other
things being equal, the more credit the consumer can access. However,
lenders make credit granting decisions based on both ability to repay a debt
(income) and willingness (the credit report) as indicated in the past
payment history.
These factors help lenders 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 annual percentage
rate (APR), grace period and other contractual obligations of the credit
card or loan.
|
