Credit reports are a valuable part of any comprehensive background check. Such information provides insights into an individual’s financial responsibility over a period of several years.
Now, it is important to note that one’s credit score is not included in a background screening credit report. What is included, however, can tell an even more complete story.
Where Does the Information Come From?
Credit information is retrieved from data collection agencies known as credit bureaus. These bureaus gather information from various creditors and provide it to consumer reporting agencies around the country. Now, there are three main credit bureaus in the United States. The three credit data titans are Experian, Equifax, and TransUnion.
What is Included in a Credit Report?
A credit report is essentially a summary of how one has handled their accounts. The information provided within can include the types of accounts currently active under their name, payment history, as well as other information reported by the credit bureaus such as negative marks.
What Are Negative Marks/Items on a Credit Report?
Lenders are concerned with one thing, and one thing alone— that they get their money back. For this reason, failure to make payments or properly reimburse credit lines can cause a number of problems for one’s credit report. In fact, it is the most weighty factor in determining one’s credit score. If payments and accounts are mishandled, creditors will report such things to the bureaus, introducing “negative marks” to a credit report.
Here are some common negative items one may encounter:
Late payments are recorded when an individual is delinquent on a payment for a certain period of time. Typically, this will be after 30,60, or 90 days, depending on the lender.
Collections are a continuation of debt owed and can remain on a credit report for up to 7 years. Late payments will eventually become collections if the account is not brought to current after an extended period of time.
A charge-off essentially means that a creditor who had been pursuing an individual in an effort to get them to make good on their debt has given up hope of payment and has closed the account.
When an individual defaults on loan payments towards an asset in their possession, the party having right-to-ownership can take the property back without invoking the help of a court. This is most common with financed vehicles.
Foreclosure is much the same concept as repossession but specifically deals with homes. When the right-to-possess party fails to make mortgage payments, they can face foreclosure.
Put simply, bankruptcy is a legal proceeding that allows individuals (or business entities) freedom from their debts. This does not mean that debts go entirely unpaid, it just means that debts are restructured or assets are sold off in order to cover them.
Tax liens are imposed when one has failed to pay their taxes.
Judgments are amounts owed as mandated by a court of law. In most instances, these are civil penalties.
Inaccuracies on Your Report
In a recent study, it was found that more than one-third of participants had errors on their credit reports. These errors ranged from fairly insignificant to very damaging.
The good news is, we have the right to accurate credit reports. If inaccuracies are found, they can be disputed with the credit bureaus who are then required to remove them. There are many trusted credit repair companies that assist consumers with this process.
Credit bureaus hold the data that can significantly influence our ability to receive a loan, affect our interest rates, and our freedom to refinance for lower monthly payments. It can also be a determining factor in securing some types of employment (i.e. financial, or accounting jobs where a person has access to customer credit card information or sensitive and confidential financial records). It is important to know what is on our credit reports, not only to understand where we may be falling short but to detect possible reporting errors.
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