How do credit bureaus affect your life?
If you have ever accepted credit cards or taken out a mortgage, you are bound to have a credit file. It is also true that whatever you do with your finances get recorded in what is known as your credit report. Who is responsible for keeping an account of your financial behavior? Undoubtedly they are the credit bureaus. Credit bureaus play an important role in your life as they determine your credibility from your financial activities. If you are found to be financially responsible, it can help you enjoy several financial benefits. If not, you may be deprived of them.
What do credit bureaus do?
These are for-profit organizations that keep records of your credit history and determine your credit rating. The ratings are used by banks as well as other lending institutions to see if you are a suitable candidate for a loan. These are also used by credit card issuers to see whether you qualify for a credit card or not. Your credit report contains a number of factors that determines your credit rating. For instance, if you have fallen behind on payments, the same gets recorded in your credit report. If you have been regular with your payments, it is recorded too.
The 3 credit bureaus
There are 3 credit bureaus operating nationally. They are Equifax, Trans Union and Experian. They are required to follow the norms laid down by the Fair Credit Reporting Act. As per federal laws, you are entitled to a copy of your free credit report from the 3 credit bureaus once in 12 months. You can also order a free copy of your credit report if an insurance carrier has refused to sell a policy to you, you have been denied employment or if you are planning to look for employment in the next 60 days.
What is FICO score?
Lenders use the FICO score to find out how responsible you are financially. The FICO score was designed by Fair Isaac Corporation. Equifax offers FICO scores to ascertain your financial behavior. As far as Experian is concerned, it has designed its own score that is referred to as Plus score. However, Plus score isn’t sold to creditors/lenders. Trans Union too has developed its own score that is sold to lenders too. There is yet another score that is referred to as the Vantage score. This score has been developed by Trans Union, Experian as well as Equifax so that it can compete with FICO score. Vantage score is sold to the lenders.
Since the credit scores reflect how financially responsible you are, it affects the way you are treated by lenders etc. A ruined credit rating affects your chances of getting a good job or staying at a place of your choice. If you file bankruptcy, it stays on the credit report for a period of 10 years.