Credit Report vs Credit Score

“What’s the difference between a credit report and a credit score?”   That’s a very common question we hear from our clients, and it’s easy to see why so many people confuse the two, since sometimes creditors use the terms interchageably.

A credit report is a detailed list of your debts and payment histories with individual creditors.  For example, if you have a car loan and a credit card, both would be listed in your credit report.  If you regularly make late or incomplete payments to any creditor, that information will appear month-by-month so that potential creditors looking at your report can make a decision about whether to extend credit to you.  Different creditors might put different weight on individual items, depending on their individual credit standards.

A credit score is a number that the credit reporting bureau believes represents your credit on the whole.  Some creditors rely on credit scores rather than credit reports because they are calculated by the credit reporting bureau based on all the information available, and don’t require the same type of line-by-line scrutiny that credit reports might.  For example, if you miss two payments on a loan, your credit report will reflect those payments and the months they were missed.  A credit score, on the other hand, would just be reduced by a set amount to reflect the missed payments.  credit dial

Here’s the catch: credit reporting bureaus (like Equifax, Experian and TransUnion) don’t want you to know how they calculate credit scores, because they are a proprietary financial product available for sale.  So you can make a guess about how certain items will affect your credit score, but you won’t know for sure until you see the score change.  Reporting bureaus claim they are using their knowledge and data analysis to give creditors the best guess available about your creditworthiness, which may be true.  But it’s difficult or impossible to dispute an incorrect score because of the secretive, proprietary formulas used to generate them.  Because we know that many credit reports contain errors and misinformation, it’s hard to know where your score should be and how to change it unless you are regularly monitoring your credit reports.

For bankruptcy purposes, we want to look at your credit report rather than your credit score, because we want to be as accurate as possible about who your creditors are and how much you owe to each.  If you haven’t had contact with some creditors in a long time, your credit report might be the most accurate record we can find to make sure all of your creditors receive notice of your bankruptcy filing.

We’re always glad to help our clients figure out the difference between credit reports and credit scores.  Feel free to give us a call if you have questions!

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Credit Reports: Get Them, Monitor Them!

credit reportCredit reports and scores are used for the purpose of advising a lender of the risk factors in lending a person money or advancing credit.  It is very important to maintain the accuracy of your credit reports.  Most commonly credit reports are incorrect after a bankruptcy filing.

Our office recommends that you check your reports at least once a year, if not twice a year.  So long as you are not requesting your credit “score,” you can view the report to check for any errors once in a twelve month period from Transunion, Experian and Equifax.  Free credit reports from all three credit reporting agencies can be obtained at:www.annualcreditreport.com.

 

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Why does my attorney need…???

We ask our clients to provide a number of documents as we prepare their cases for filing.  Some of the information is for the court, and some is for our office, so we can evaluate any potential issues that might arise during your case.  For example:

  • Your Pay Stubs:  We need to see your paycheck stubs so we can determine your income and the expenses taken from your check in the period of time leading up to the bankruptcy.  We calculate your gross and take-home pay, as well as the amounts deducted for things like taxes, health insurance, stock purchasing plans, and other items.
  • Your Bills:  Even though we’ll be checking your credit report, there are a number of reasons why a bill may not be listed there.  For example, medical bills are often omitted for privacy reasons.  Also, some creditors, like payday loan lenders and others, may not report accounts to a credit reporting bureau.  Because we want to make sure that everyone you owe gets listed in your case, we ask you to bring everything you have.
  • Writs of Garnishments, Lawsuits, or Judgments:  We want to make sure we know about legal action a creditor may have taken against you, and where they are in the court process when your case is filed.  This is important because we want to make sure the creditors and the court  are given notice right away when your case is filed, so that they don’t continue with collection action against you.  It’s a good idea to bring in everything you think might fit this category, even if you’re not sure whether it’s a lawsuit or not.  It’s okay to provide extra copies of any document–we just want to make sure we get all the information necessary to make sure your case runs smoothly.
  • Titles or Registrations for Vehicles:  When we prepare your case for filing, we make every effort to protect your property through the course of your case by using the most beneficial and accurate exemptions to cover the things you own.  (see this post for more about exemptions)  That means we need to have the most accurate and current description of items like the vehicles you own.  Sometimes, the trustee in your case will also want to see this information after your case is filed.
  • Property Tax Statement:  The value of property fluctuates up and down with the market, improvements, and other factors.  Your property tax statement is one tool we use to determine the value of your property and the amount of equity you have at a given time.  In some cases, we may also ask you to obtain a Comparative Market Analysis (CMA) to get more information about the actual value of your property, so that we can do everything possible to protect your home during the bankruptcy.
  • Tax Returns:   We need to know about your earnings and the source of your income over the past couple of years when we file your bankruptcy, and tax returns are a good way to get that information.  The trustee in your case will also want to review your most recent tax returns once your case is filed.
  • Divorce Decree:  If you’re recently divorced, the attorney may ask for a copy of your divorce decree.  The terms of the divorce are important, because the attorney will need to know whether any marital debt was assigned to one person or the other.  If that’s the case, your attorney will talk to you about some important considerations and limitations regarding discharge of your debt.
  • Retirement Account Information:  We need to list all of the property you own on the date your case is filed, including retirement accounts.  Generally, retirement accounts are completely exempt from your creditors.  However, your attorney will want to make sure that your accounts fall under that protection, and we’ll need the balances for each account to accurately prepare your petition.

There are a number of other documents we may need to complete your case.  Every case is different, and we ask you to provide only what we need in your individual situation.  If you ever have questions about the documents your attorney has requested, give us a call.  We’re happy to help!

 

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Ready to Get Back on Track? We Can Help!

stress woman

We often meet with clients who have been “off the grid” for a period of time–people who have avoided credit, banking, and even filing taxes because they ended up with overwhelming debt or bad credit at some point in their lives and allowed it to keep them in-hiding from their creditors.  People in this situation are often embarrassed or ashamed about the state of their financial affairs, so they avoid dealing with these issues for long periods of time.  We know how discouraging it can be to live this way, and want you to know that there is help available.

Debt is about more than just money.  It’s about freedom–the freedom to make life choices, care for yourself and your family, and plan for the future.  And we understand that debt can be a serious weight on your shoulders that prevents you from moving ahead in life.  If you’re ready to take charge of your financial future, give us a call and come in for a free, confidential initial consultation.  Regardless of your financial past, we can talk to you about your situation, and explain whether bankruptcy can help you move onto the next stage of your life.

 

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How to Opt Out of Pre-Screened Credit Offers

 

Some companies use informatopt-oution on your credit report to generate offers of credit or insurance, sometimes called “pre-screened” or “pre-approved” offers.  Companies set a minimum bar for creditworthiness, then contact the major credit reporting bureaus to get a list of consumers who meet the criteria for their offer.  These pre-screened offers don’t affect your credit, but they can be an annoyance if you’re receiving a large number of offers by mail or email.

The major credit reporting bureaus provide a way to stop receiving offers generated by the information on your credit report.  When you choose to opt out of pre-screened credit and insurance offers, you may choose to do so for either 5 years, or permanently.  Because the information is linked to your personal credit report, you’ll need to provide certain information, like your social security number and date of birth.  The information is only used to process your opt-out request.

  • If you’d like to opt out for 5 years, go to www.optoutprescreen.com or call 1-888-5-OPT-OUT.
  • If you’d like to opt out of pre-screened offers permanently, go to www.optoutscreen.com and select “Permanent Opt-Out by Mail”.  The permanent opt-out process can be started online, but must be completed by mail using a form that will be generated when you make your request.

This opt-out method won’t eliminate your junk mail, but it should significantly reduce the amount of unsolicited mail offers you receive.

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What’s the Difference Between a Credit Report and a Credit Score?

We often talk to clients who are confused about the difference between their credit reports and their credit scores.  It’s easy to see why a consumer might be confused about these two different information sources, since both are tools used by creditors when deciding whether to grant credit.

A credit score is not the same as a credit report, but either or both can be used by potential creditors to determine whether they will extend credit to you as a consumer.  Your credit report is all of the compiled information about your credit history, made up of information reported by your current or past creditors.  Your credit score, on the other hand, is a commercial analysis of all of the available information.  Lenders generally pay a company to determine a consumer’s credit score, then use that information to make a credit decision.  In some cases, consumers can pay the same companies to view their own credit scores.

Credit Score Good

A credit score is a determination of your creditworthiness based on a number of factors, most of which come directly from the information in your credit report.  Different companies compile information into scores in a variety of ways to be most useful for their particular purpose.  For example, one of the most popular credit scores available, FICO, looks at a mix of factors, but relies heavily on on-time payment history and utilization ratio to come up with a score between 250 and 900 with 900 being a perfect creditworthiness rating.from the data in your credit report.  There are many different types of credit scores.  Some specialized 

scores are used for particular industries, such as insurance underwriting or mortgage lending.  Generally, a credit score is an attempt to predict how likely a consumer will pay back a loan as agreed. 

For more information about what’s in your credit report, check out this previous post.

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What’s in Your Credit Report, Anyway?

Past Due StampWhen you have credit accounts, such as credit cards, auto loans, student loans, or mortgages, the creditor gathers identifying information about you.  A creditor will likely want to know things like your social security number, address, and telephone number.  Because the creditor is lending money to you, they may also want information about your employment and income.

Once an account is opened, your creditors will periodically submit basic information about the account to one or more of the three major credit-reporting bureaus: Equifax, Experian and TransUnion.  The credit bureau then compiles the information into a single credit report.  Keep in mind that because each creditor may choose to report to one, two or all three of the major credit bureaus, each of your 3 credit reports may differ slightly.

The information submitted may include:

  • Account numbers
  • Age of the account,
  • Payment history, including whether you make payments on time or late,
  • Current balance,
  • In the case of a revolving or credit card account, your credit limit (with your current balance, this is called a “utilization ratio”),
  • Other status information about the account, such as whether it’s been referred for collection, settled, or charged off by the lender as bad debt.

The report may also include information about whether you have applied for credit, whether or not you were approved, as well as information about your past known addresses and employers.  If you have ever applied for credit under a different name, such as a maiden name or a different name other than your full legal name, those will probably appear as well.

One potential problem with credit reports is that they don’t typically list medical debts, which can be a large category of creditors for a consumer considering bankruptcy.  Medical debts are excluded from credit reports in most cases for privacy concerns.  However, if the debt has been referred for collection purposes, the collecting agency may then report the debt to credit reporting bureaus.  Additionally, some creditors, such as payday loan lenders and many small businesses, don’t report to credit bureaus at all.  It’s important to tell your attorney if you believe you have a creditor who may not be listed in your credit report.  Even if you don’t have a statement or know the exact amount owed, we can usually find enough information to be sure the creditor is listed in your bankruptcy case.

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Tips and Tricks: How to Get a Free Credit Report Every 3 Months

We talk a lot about how important it is to monitor your credit report using the free reports you can get at www.annualcreditreport.com.  Here’s a great way to make the most of your free reports:

  1. Start by requesting a single report from one credit reporting agency.  For this example, let’s say you request an Equifax in January, at the beginning of the year.  Save or print the report and review it carefully to ensure that your creditors have accurately reported your accounts.  If you open any disputes or contact a creditor about inaccurate reporting, make a note.
  2. After 4 months, request another report.  For our example, let’s say you request an Experian report in May.  Check your notes from the previously printed report and make sure that any requested corrections have been made.  If not, open another dispute.
  3. After another 4 months, request a report from the remaining reporting agency.  For our example, you’d request a TransUnion report in September.  Repeat the process of reviewing your report and be proactive about correcting errors.
  4. After 4 more months, start again by requesting a copy of the report you requested one year ago.

 You can see that with a little planning, you can continue to receive a free copy of your credit report three times per year, every year.  Monitoring all three reports continuously is a great way to keep your credit on track and make sure you know what lenders will see when they check your report.

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Get Your Free Credit Report

It’s a good idea to check your credit report at least once per year.  That’s especially true if you’ve filed a bankruptcy, because creditors often drop the ball in reporting that a debt has been discharged through bankruptcy.  That can cause problems later on for consumers who are trying to put their financial lives back together and want to apply for credit or financing.  Fortunately, all consumers can check their credit reports free of charge once per year from each of the three major credit reporting bureaus.  There are three ways to request your free credit report:

  1. Go to www.annualcreditreport.com.  This is the official free site setup by the three major credit reporting bureaus to provide consumers with free copies of their credit report as required by law.  Fill in the information and request your reports.  You can either print the report or save it as a PDF on your computer.  If you print it, be aware that some reports are as long as 40-50 pages.  If your answers to security questions don’t match what the agency has on file, it may be unable to provide you with reports online.  If that happens, just try one of the other methods.
  2. Call 1-877-322-8228 to order a report by phone.  After completing a verification process, the report will be mailed to you.  Reports typically take a couple of weeks to receive, but sometimes arrive sooner.
  3. Request a copy of your credit report by mail.  Download and fill out a copy of the official request form, then mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.  Expect the same 2-3 week waiting period to receive your report by mail.
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FTC Study Says 1 in 4 Consumers Have Errors in Credit Reports

In a recent study, the Federal Trade Commission discovered that as many as 1 in 4 consumers have potentially negative errors on their credit reports!  That’s a lot of errors that could be corrected by careful monitoring and disputes with problem creditors.  Errors aren’t just a problem for consumers who have filed bankruptcy, either.  They can also make it harder to get credit, or can result in higher rates and fees on loans and credit.  The FTC has just released the results of the study, which is the first major study to look at consumers, lenders and reporters, the Fair Isaac Corporation (which develops FICO credit scores), and credit reporting agencies.

FTC Study Results

 

 

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