Our economy is based on credit.

Most people finance their homes with mortgages and pay for their cars with loans. Young people often obtain loans to pay for college. And, of course, countless people routinely make purchases with credit cards.

We can't expect to receive credit as a matter of course, however. We must apply for it. And just as you would be hesitant to lend money to a stranger, no bank, retailer, or finance company will grant you credit without knowing something about you.

It used to be that a retailer or bank would have to call each creditor you listed on an application form before they would decide to extend you credit. Today, they rely on credit reports, so it's important for you to now what's in yours.

What is a credit report?

A credit report is a record of your credit activities. It lists any credit card accounts or loans you may have, the balances, and how regularly you make your payments. It also shows if any action has been taken against you because of unpaid bills.

Where do credit reports come from?

In most cases, credit reports come from credit bureaus (also called credit-reporting companies), which collect information about our credit activities and store it in giant databases. The credit bureaus charge a fee for supplying the information.

Who is allowed to see my credit report?

Credit bureaus can provide information only to the following requestors: 1) creditors who are considering granting or have granted you credit; 2) employers considering you for employment, promotion, reassignment, or retention; 3) Insurers considering you for an insurance policy or reviewing an existing policy; 4) government agencies reviewing your financial status in connection with issuing you certain licenses or government benefits: and 5) anyone else with a legitimate business reason for needing the information (such as a potential landlord). Credit bureaus also furnish reports of so required by court orders or federal jury subpoenas and they will also issue your report to a third party if you give them written instructions to do so.

What type of information is on my credit report?

There are usually four types of information:

1. Identifying Information: Your name (including if you're a Sr., Jr., or a III), nicknames, current and previous addresses, social security number, year of birth, current and previous employers, and, if applicable, your spouse's name.
2. Credit Information: The accounts you have with banks, retailers, credit-card issuers, and other lenders. The accounts are listed by type of loan (mortgage, student loan, revolving credit), the date you opened the account, your credit limit or the loan amount, any cosigners on the loan, and your payment pattern over the past two years.
3. Public Recording Information: State and county court records on bankruptcy, tax liens, or monetary judgments. (Some credit-reporting companies list non-monetary judgments as well.)
4. Inquiries: The names of those who have obtained copies of your credit report within the last six months (two years for employment purposes).

Where do the credit-reporting companies get their information?

From parties that have previously extended credit to you, such as the department store that issued you a credit card or the bank that issued you a personal loan.

How do errors in reports happen?

Think about how often a misspelling of your name or a mistake in your street address shows up on a piece of your mail. Then imagine the possibility for error in a report that contains many more points of information on you. Cases of mistaken identity, out-of-date information, and outright inaccuracies can easily occur.

What should I do if I find an error on my credit report?

Notify the credit-reporting company immediately. If the company cannot confirm the information under dispute, it will be removed from your file and a corrected report will be sent to those parties you specify who have received your report within the past six months (or within two years if the party requested your report for employment purposes.)

What if the credit-reporting company stands by its report?

You have the right to present your side of the story in a brief statement, which the credit bureau must attach to your credit file. Anyone requesting a copy of your credit report would also automatically receive your statement (or a summary or codification of it) unless the credit bureau deems it irrelevant or frivolous.

What should I do if I am denied credit because of something in my credit report?

The lender denying you credit must give you the name and address of the credit bureau that provided the credit report. At that point, you have up to 30 days to request a free disclosure. Most consumer-reporting agencies provide consumers with copies of their reports. A few may make disclosure only in person or by telephone. The credit bureau is obligated to let you know the nature and substance of all information contained in your report. It must also tell you the sources of the information and the recipients of consumer reports for the previous six months (two years for reports furnished for employment purposes.)

How long does information stay on my credit report?

Generally the credit bureau must automatically delete information on adverse credit instances that are more than seven years old and any bankruptcies that are more than 10 years old. However, these rules do not apply to information provided for credit transactions involving a principal amount of $50,000 or more, underwriting of the insurance involving a principal amount of $50,000 or more, or employment of an individual at an annual salary of $20,000 or more.