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Extension Grows Here: Credit Reports vs Credit Scores

 

LEIGH GUTH

 Guest Columnist

 

Since the holidays, there has been constant dialog about breeches in data security at major retailers. If you are like me, I was not concerned until the news broke about Target, and I received an email from the company apologizing that my financial data may have been compromised. In response, Target has promised that customers would not be liable for fraudulent charges stemming from the problems. They have offered all customers of its US stores a free credit report, credit monitoring and identity theft protection.

A credit report is a history of a person’s use of credit. This report will show credit cards in a person’s name, including active cards, unused cards and those that have been closed during the past seven years. The report shows balances and whether payments have been received on time. Other financial records show too: vehicle payments, mortgages, court judgments, and outstanding bills such as unpaid utility bills at a previous residence.

By reviewing a credit report, a businessperson can decide if a customer is likely to pay back a loan or if they are a high risk.  From that information, they can decide to approve or deny a loan, what interest rate they will charge a customer or whether they will rent a property to that customer. As a consumer, when we look at our own credit report, we can anticipate what decision a lender might make about us. Also, we can see if we recognize all of the accounts that are listed in our name. This is how Target is trying to empower customers to help fight fraud – by helping customers be certain that criminals have not opened financial accounts in their name.

Everyone is entitled to a free credit report, not just Target customers. By United States law, all consumers are able to receive one free credit report annually from each of the three major credit reporting agencies, TransUnion, Equifax and Experian. At Cooperative Extension, we recommend that you request a report from one credit bureau at a time and space those requests throughout the year. That way, you will have an opportunity to see what is being reported periodically and not every 12 months. The official website is www.annualcreditreport.com for the free credit report.

On that site, customers are offered their credit report for free but can purchase their credit score. What is the difference between a credit report and credit score? A credit score is a snapshot of a person’s credit worthiness at a certain point in time. Credit scores are based on a person’s credit report plus a few other things. Credit scores evaluate how long you have had credit: a 30-year history successfully using credit warrants a higher score than a two-year history. What types of credit is the person using? A home mortgage receives a higher score than a finance company. How much credit does the individual have available and how much are they using? Having too much credit available is not positive nor is having maxed out all of your available credit.

Since credit scores can change daily, Extension does not recommend paying for a credit score in most situations. If you are planning on buying a house or a vehicle in the immediate future, it may be worth the investment.

To learn more about all types of financial information, contact Leigh Guth (704-736-8462 or leigh_guth@ncsu.edu at the Cooperative Extension office in Lincoln County to find out about upcoming classes. Or check these websites for more researched information from Cooperative Extension nationwide: http://www.extension.org/personal_finance.

Leigh Allen Guth is Family and Consumer Science Extension Agent with the Lincoln County branch of the NC Cooperative Extension Service.

 

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