Credit history or credit
report is, in many countries, a negative record of an individual's or
company's past borrowing and repaying, including information about late
payments and bankruptcy. The term "credit reputation" can either be
used synonymous to credit history or to credit score.
In many countries, when a customer fills out an application
for credit from a bank, store or credit card company, their information
is forwarded to a credit bureau. The credit bureau matches the name, address
and other identifying information on the credit applicant with information
retained by the bureau in its files. That's why it's very important for
creditors, lenders and others to provide accurate data to credit bureaus.
This information is used by lenders such as credit card companies to determine an
individual's credit worthiness; that is, determining an individual's ability
and track record of repaying a debt. The willingness to repay a debt is
indicated by how timely past payments have been made to other lenders. Lenders
like to see consumer debt obligations paid regularly and on time, and therefore
focus particularly on missed payments and may not, for example, consider an
overpayment as an offset for a missed payment.
There has been much discussion over the accuracy of the data
in consumer reports. In general, industry participants maintain that the data
in credit reports is very accurate. The credit bureaus point to their own
study of 52 million credit reports to highlight that the data in reports is
very accurate. The Consumer Data Industry Association testified before the
United States Congress that less than two percent of those reports that
resulted in a consumer dispute had data deleted because it was in error.
Nonetheless, there is widespread concern that information in credit reports is
prone to error. Thus Congress has enacted a series of laws aimed to resolve
both the errors and the perception of errors.
If a US consumer disputes some information in a credit
report, the credit bureau has 30 days to verify the data. Over 70 percent of
these consumer disputes are resolved within 14 days and then the consumer is
notified of the resolution. The Federal
Trade Commission states that one large credit
bureau notes 95 percent of those who dispute an item seem satisfied with the
outcome.
The other factor in determining whether a lender will
provide a consumer credit or a loan
is dependent on income. The higher the income, all other things being equal,
the more credit the consumer can access. However, lenders make credit granting
decisions based on both ability to repay a debt (income) and willingness (the
credit report) as indicated by a history of regular, unmissed payments.
These factors help lenders determine whether to extend
credit, and on what terms. With the adoption of risk-based pricing on almost
all lending in the financial services industry, this report has become even
more important since it is usually the sole element used to choose the annual
percentage rate (APR), grace period and other contractual obligations of the credit card or loan.
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