Credit Reporting Agencies Basics
Equifax, TransUnion, and Experian are for-profit entities commonly referred to as credit agencies or credit bureaus. Here is a brief overview of the credit bureaus, their regulation, and how it directly affects your ability to obtain a loan.
The Credit Bureaus Function
Equifax, TransUnion, and Experian compile data about you from all types of lenders, collection agencies, and government offices. This information is used to build your credit score and credit profile.
Based on the mathematical models used by three bureaus, this profile and score change in real-time. As an example, when you use your credit cards in a month, your balance relative to the credit limit changes. Your credit card company reports this information to the bureaus. This changes your credit score by decreasing your score as your balance is closer to your limit.
Your credit score will remain steady if you pay your credit card in full each month or on time.
Late payments on credit cards, mortgages, cable bills, parking tickets, medical bills, credit cards, and other financial obligations can adversely impact your credit score.
How This Affects Your Ability To Get A Loan
Federal law mandates that mortgage lenders check your credit scores and history before approving your loan. This is done by pulling credit reports from Equifax and TransUnion.
Your credit score and credit history will determine whether or not you are eligible for a mortgage.
If you have late payments on credit cards that have reduced your credit score from 780-780, you will still be eligible for a mortgage with 20% down, but your rate could be 0.375 percent higher if you have a score of 680 than a score of 780.
Any late payment on any account will remain on your credit report until seven years after the date of the payment. Therefore, your credit score will be the worst for the first two years. After that, your score will start to improve.
The duration of any other adverse items on Equifax, TransUnion, or Experian credit reports are similar:
For two years, inquiries from creditors that you apply for will be open.
The validity of judgments is seven years after the date of filing a paid judgment.
Tax liens are valid for seven years after the date they were paid.
Bankruptcies can last from seven to ten years, depending on the type of bankruptcy.
After the late payment to the original creditor, collection accounts are valid for seven years.
How Credit Bureaus Are Regulated To Protect You
Equifax, TransUnion, and Experian have a lot to do as the source of data for lenders for mortgages or other types of loans. As a result, they are regulated to protect your rights.
The Fair Credit Reporting Act (FCRA) is the main body of laws that regulate bureaus. It was established in 1970 and updated in 2000 with additional consumer protections.
These consumer credit protection laws are enforced through the Consumer Financial Protection Bureau (CFPB)
A free credit report is available once a year. The government requires Equifax, TransUnion, and Experian to maintain a site called AnnualCreditReport.com, which is the only government-guaranteed source for this free report.
If your credit history has been used against or to deny you a loan, you must tell us.
Creditors can provide information about your credit score. For example, your mortgage lender must disclose your credit score to you when you complete a formal application -- and it's worth noting here that AnnualCreditReport.com reports don't include credit scores.
You have the right to dispute inaccurate, incomplete, or out-of-date information. The bureaus must correct, delete, or verify incorrect, incomplete, unverifiable, or out-of-date information.
You have the right to request that your name be removed from any marketing lists.
