Close-up: Credit Report

Physician's Money Digest, December 2006, Volume 13, Issue 12

n.

Credit Report: A report containing detailed information on a person'scredit history, including identifying information, credit accounts, loans,bankruptcies, late payments, and recent inquiries.

For a physician, a curriculum vitae is a summary ofyour educational and academic background, includingteaching and research experience, publications,presentations, awards, honors, affiliations, and otherdetails. It is a fairly complete picture of who you are, whatyou've accomplished, and what you're currently achievingfrom a professional and career perspective—it's yourcareer DNA.

A credit report is similar; it details your financial DNA.According to the Federal Trade Commission (FTC), a creditreport includes information ranging from where you live tohow you pay—or don't pay—your bills. The informationcontained in your credit report is purchased by creditors,insurers, and employers to evaluate your applications forcredit, including everything from a basic credit card to ahome mortgage. A poor credit report can influence yourapproval and interest rate, and it can hinder you financiallyfor years to come.

The Report Serves Many Purposes

Credit reports come into play in many aspects of ourlives. For example, if you apply for a car loan, the dealershipwill run a credit check on you and obtain a copy ofyour report before they approve you for one. It's also likelya report will be generated when you apply for a newcredit card, finance your son's or daughter's college education,or apply for a new job. The latter example mayseem unusual, but more businesses are using creditreports to gain a better understanding of a person's levelof responsibility. This is especially important if the job'sduties include handling finances.

A poor credit report or low credit score is like having apoor public image and a reputation of irresponsibility. Ittakes a long time to cleanse your report of damaginginformation—7 years in most cases and 10 years wherebankruptcy information is concerned. But according to anEzineArticles.com editorial by Dennis Cary, titled "Understandingthe Importance of Credit Reports," the formulafor maintaining a positive credit report is fairly simple:Paying your bills on time and not maxing out your creditcards are the ingredients for success. Paying bills late ormaintaining a high credit card balance in comparison toyour available credit limit can have a negative impact. It isessential for you to know the details of your credit report;everyone else does. And although errors in credit reportsare infrequent, they do occur, so it is important to catchthem early. It's your responsibility to ensure the informationin your report is accurate.

How to Access Your Report

Thanks to the Fair Credit Reporting Act (FCRA), it's easyto access your report. The FCRA requires that, upon yourrequest, each of the three nationwide consumer reportingcompanies—Equifax, Experian, and TransUnion—provideyou with a free copy of your credit report once a year.

To order a copy of your credit report, simply go to theAnnualCreditReport.com Web site, call 877-322-8228, orfill out the Annual Credit Report Request form that can befound online at www.ftc.gov/credit. You can requestcopies of your report from each company simultaneouslyor individually at different times during the year. Andaccording to the FTC, it's a good idea to obtain a copy ofall three reports because each company gets its informationfrom different sources. With all three reports, you'llhave a complete picture of your credit history.

The FTC warns to be aware of fraudulent Web sites thatoffer free credit reports when they are not part of the freeannual credit report program. In some cases, these freereports come with expensive strings attached. Accordingto the FTC, "Some sites sign you up for a supposedly freeservice that converts to one you have to pay for after atrial period." If you don't cancel during the trial period,you could be agreeing to have fees charged to your creditcard.

Repair Your Credit Score

What do you do if you find that you have apoor credit report? An EzineArticle.com piece byPhilip Nicosia, titled "How to Repair Your CreditScore," offers the following interesting solutions:

For starters, obtain a new credit card. Yes, creditcards may be at the root of your problem, but ifyou use the credit card responsibly, paying yourbills on a regular basis, your credit report scorewill improve. Consider a secured credit card,where you put up collateral equal to or higherthan your credit limit, which won't be high tobegin with if you have poor credit. The collateralcan be in the form of a car, jewelry, or even stockmarket investments.

As an alternative, consider prepaid cards.According to Nicosia, prepaid cards enable you todetermine your credit line. They not only help yourebuild your credit history, but they'll help youstick to a budget—the failure of which often leadsto poor credit reports. Keep in mind that if you goover your limit on a prepaid card, you could becharged a fine.

You can also take steps toward improving yourcredit score by paying all your bills on time, includingutility bills like phone and electric. Enroll in anautomatic debit arrangement plan through yourutility company and bank, and you'll eliminate thechance of forgetting to pay a bill on time.

POP QUIZ

1) Who might make use of your credit report?

  1. creditors
  2. insurers
  3. employers
  4. all of the above

2) How many years does information generally remain onyour credit report?

  1. 5
  2. 7
  3. 10
  4. 15

3) How many free copies of your credit report can youobtain each year?

  1. 1
  2. 2
  3. 3
  4. 4

4) Which agency does not provide free copies of yourcredit report?

  1. Equifax
  2. Experian
  3. TransUnion
  4. Credit Reports R Us

5) Ways to improve your credit score include

  1. paying bills on time
  2. using secured credit cards
  3. using prepaid cards
  4. all of the above

Answers: 1) d; 2) b; 3) c; 4) d; 5) d.