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[INFOGRAPHIC] Debunking credit myths

Published: September 18, 2014 by Editor

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School is back in session, but many people still have questions about a subject that is rarely taught in the classroom: their credit. Through its credit education portal, Experian provides people who have questions about credit reports or credit scores with a simple, convenient way to learn more about credit.

“Experian began its consumer education program more than 20 years ago and believes that a knowledgeable consumer is an empowered consumer,” said Becky Frost, senior manager of consumer education at Experian Consumer Services. “Yet, questions remain about how to navigate the world of credit, so we encourage people to learn more about credit and we provide resources to help answer their questions.”

The credit education site offers helpful credit information, including how credit can help consumers in the marketplace and the differences between reports and credit scores. Some of the most common questions about reports and scores are answered below.

Credit reports
Uses of a credit report: Credit reports often are referenced to help lenders quickly and objectively decide whether to grant consumers credit and under what terms. Information from credit reports can be used for select employment, rental housing, licensing, insurance and other specific business relationship decisions. Consumers also can check their credit reports for signs of identity theft or use them to better understand what influences credit so they can make more informed financial decisions.

Typical credit reports include the following main categories of information:

Identification: the consumer’s name, current and previous addresses, telephone number, reported variations of his or her Social Security number, date of birth, employer and spouse’s name

• Account history
: specific information about each account, such as date opened, credit limit or loan amount, balance, monthly payment, payment status and payment history

Public records: bankruptcy filings, court records of tax liens and monetary judgments

Inquiries: a record of those who have reviewed a consumer’s credit information

Credit reports are updated regularly: In general, creditors forward information to the credit reporting agencies monthly after payments for that billing cycle are posted. Because billing cycles vary, account updates are received by the credit reporting agencies throughout the month. However, it is important to note that lenders are not required to report account information to the national credit reporting agencies. Participation is entirely voluntary.

Credit scores
Credit scoring is a separate process from credit reporting. Lenders and other credit grantors obtain consumers’ scores by selecting the scoring methods that are most predictive of risk for their specific kind of business. There is not one credit score. In fact, there are hundreds of credit scoring systems used by lenders. However, a credit score results from information in a consumer’s credit report, translating various score factors into a simple number. This enables lenders to make more objective, consistent lending decisions — and make them more fairly and quickly.

Consumers also may track their own credit scores from a number of sources, including Experian.com. Any score consumers receive through a consumer score disclosure service, such as a credit reporting agency, will explain what the number means in terms of general credit risk and will describe the factors from the credit report that most influenced the score.

Influential factors:
Credit score factors are the elements from consumers’ credit reports that shape their credit scores. They could include:

• Payment history
• Credit usage
• Average age of accounts
• Account types
• Inquiries

Factors like total debt, types of accounts, number of late payments and age of accounts affect credit scores; however, information such as marital status, age and occupation does not. Credit factors indicate what elements of a consumer’s credit report most affected the credit score at the time it was calculated.

To learn more about credit scores and credit reports, visit https://www.experian.com/consumer-education-content/.

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