Credit Report Companies - Debunking 5 Myths
Credit report companies - sometimes called the "Big Three" credit bureaus - play a powerful role in the world of consumer finance.
It is upon their reports that thousands of lenders nationwide determine who is eligible for loans and how much interest consumers should pay on their debt.
Here I debunk 5 myths about the credit report companies: Myth #1: The three bureaus use different formulas to calculate your credit score Truth: All three bureaus use the same formula to calculate your credit, or FICO, score.
The formula was created and is maintained by the Fair Isaac Corporation.
You have probably noticed that your credit scores as per each of the three bureaus differ slightly from bureau to bureau.
The reason for this discrepancy is that each bureau accesses slightly different sets of information sources (e.
g.
, banks, credit card companies, mortgage lenders, etc.
) pertinent to your credit history.
Myth #2: Correcting an error on file with one bureau will correct it with all three Truth: If you find errors or need to make corrections on your credit reports, it is important that you contact each bureau separately.
The best guideline is to analyze each of the three bureaus' reports independently and to then contact each one about only the errors you find on their particular reports.
Myth #3: The bureaus can always charge you for your credit report Truth: The credit reporting bureaus do generate revenue through the issuance of credit reports to both consumers and lenders.
However, all three bureaus are required by the Federal Trade Commission to provide you with a free copy of your report at least once per year.
See the FTC Web site for details on where to get your official copy.
Myth #4: The bureaus make it difficult to correct credit report errors Truth: While it is true that contacting the credit bureaus is not as always a breeze, in general they are very responsive to claims about errors on your report.
To correct an error, they will ask for several forms of identification to ensure that you are indeed you.
Once they have established your identity as authentic, it is just a matter of your informing them of errors and providing evidence as necessary.
Myth #5: The bureaus are too powerful a force in the financial world Truth: The Big Three bureaus do exercise a lot of power, but their power is really given to them by lenders who depend upon the bureaus' information in order to make prudent lending decisions.
And, their existence does help consumers, as well.
Without a nationally-recognized credit rating system, the default rate for loans would likely skyrocket, leading to much higher average lending rates.
And, the fact that there are three bureaus creates a system of checks and balances in terms of credit score accuracy.
The credit report companies are indeed influential, and yet they perform a valuable service to lenders, consumers, and the lending industry as a whole.
Exercise your right to your free annual credit report.
Then, do what is needed to improve your credit score.
It is upon their reports that thousands of lenders nationwide determine who is eligible for loans and how much interest consumers should pay on their debt.
Here I debunk 5 myths about the credit report companies: Myth #1: The three bureaus use different formulas to calculate your credit score Truth: All three bureaus use the same formula to calculate your credit, or FICO, score.
The formula was created and is maintained by the Fair Isaac Corporation.
You have probably noticed that your credit scores as per each of the three bureaus differ slightly from bureau to bureau.
The reason for this discrepancy is that each bureau accesses slightly different sets of information sources (e.
g.
, banks, credit card companies, mortgage lenders, etc.
) pertinent to your credit history.
Myth #2: Correcting an error on file with one bureau will correct it with all three Truth: If you find errors or need to make corrections on your credit reports, it is important that you contact each bureau separately.
The best guideline is to analyze each of the three bureaus' reports independently and to then contact each one about only the errors you find on their particular reports.
Myth #3: The bureaus can always charge you for your credit report Truth: The credit reporting bureaus do generate revenue through the issuance of credit reports to both consumers and lenders.
However, all three bureaus are required by the Federal Trade Commission to provide you with a free copy of your report at least once per year.
See the FTC Web site for details on where to get your official copy.
Myth #4: The bureaus make it difficult to correct credit report errors Truth: While it is true that contacting the credit bureaus is not as always a breeze, in general they are very responsive to claims about errors on your report.
To correct an error, they will ask for several forms of identification to ensure that you are indeed you.
Once they have established your identity as authentic, it is just a matter of your informing them of errors and providing evidence as necessary.
Myth #5: The bureaus are too powerful a force in the financial world Truth: The Big Three bureaus do exercise a lot of power, but their power is really given to them by lenders who depend upon the bureaus' information in order to make prudent lending decisions.
And, their existence does help consumers, as well.
Without a nationally-recognized credit rating system, the default rate for loans would likely skyrocket, leading to much higher average lending rates.
And, the fact that there are three bureaus creates a system of checks and balances in terms of credit score accuracy.
The credit report companies are indeed influential, and yet they perform a valuable service to lenders, consumers, and the lending industry as a whole.
Exercise your right to your free annual credit report.
Then, do what is needed to improve your credit score.