[MUSIC] Welcome to this lecture segment which is part of the Borrowing and Credit module. In this lecture we're going to be covering the topics of credit reports and credit scores. And we'll be splitting those up into two parts. In the first part, we'll be talking about the information that's contained in your credit report and how that is used in lending decisions or how that can affect lending decisions. And also how you can go about checking your personal credit report, and maybe different strategies to take in terms of actually checking the information that's in your credit report. In part two, we'll move on to the credit score itself, which is going to be a number that's based on the information in your credit report. We'll talk about two of the major credit scores that are used in the US by the credit bureaus when they're reporting information when they get inquiries from potential lenders and creditors. And we'll talk about the different strategies that you can implement to improve that credit score and improve credit decisions that you could be faced with in the future. So, here in part 1, were going to first focus on credit reports and for the purposes of the material we'll be covering here. We're going to focus on the standard credit reports that are provided for individual consumers in the US. And there are three main credit agencies or credit bureaus that collect the information that go into a consumer's credit reports. The names of those agencies are Experian, TransUnion and Equifax. So for any existing credit account that you currently have, information is reported to these three credit bureaus and that information serves as the basis for what is included in your credit report. This includes a wide range of personal credit-related information, and we'll take a look at some of the specific types of items that can show up in your credit report as we continue along here in this lecture segment. And what this information is ultimately used for is to be put into a mathematical algorithm or formula which is going to come up with a credit score that's going to be used by potential lenders and creditors in determining whether or not you qualify for loans or credit cards that you may apply for in the future. So your credit report, again there's the three main credit bureaus or credit agencies which provide credit reports for individual consumers in the US. And every agency or bureau is going to have a different style and format in terms of what the credit reports themselves actually look like. However, all three credit bureaus are going to report the same type of information in those reports. So there's three main categories that are going to show up regardless of the credit report you request from any of the three agencies. And those would be personal information, information about your existing or recent credit accounts, so some historical information about how you used credit in the past. And then finally a section which outlines any inquires that have been made related to your credit history. In the personal information section. That's going to include items such as your legal name and any aliases that you may go by or have existing credit accounts under. It's also going to include some private information such as your social security number and date of birth. It will also typically include things like any current and potentially former addresses that you may have resided at as well as any current or previous phone numbers that you may have used. Finally, there may be some information related to some of your current or former employers. In the credit account history section, this is really where the meat of your credit report is located. So this is going to include information about how you've used any accounts that you currently have open or have had open in the past number of years. This credit history section is typically split up into three or four major sections. So it will include information on what is referred to as your revolving accounts. This refer to credit accounts or lines of credit that don't necessarily have a fixed payment associated with them or a fixed balance or amount owed. So the major things that fall under the revolving account category are credit card accounts. There's typically going to be a maximum amount that you can have on a credit card, a maximum credit limit associated with a credit card at any given time, but you may or may not be carrying anything close to that balance or balance at all on those credit accounts. So revolving accounts refer to things where the payment amount and the amount that you owe may vary significantly from month to month. The second category is what they refer to as installment loans. Now we're shifting into credit accounts that have a very specific amount that is owed on them as well as a very specific payment that is required to be made to pay off that balance over a certain period of time. Installment loans, the most common things that show up in this category would be loans on things like automobiles or vehicles. And then finally, mortgage accounts refer to, again, loan contracts or credit accounts were a specific amount was borrowed, or a specific amount is owed, and there is a specific payment associated with the amount that the borrower or the credit user owes in those cases. Mortgage accounts typically are associated with some type of real estate purchase, so the loan itself is going to be secured by some real estate. The most common example of a mortgage account would be a mortgage loan on an individual's primary residence. There's also a category that includes any other types of credit accounts or activities. This is often times one of the more surprising areas in an individual's credit report. Things can show up here, any kind of negative public records, foreclosures, bankruptcies, things that could negatively impact your credit report and may show up in that other category. And then finally, credit inquiries is typically another main section in a credit report. And this will usually include any type of inquiry that a potential creditor or lender has made regarding your credit history. And these'll be split up into more formal or regular inquiries which will be categorize as such if you actually applied for a loan or a new credit card account. And then there'll also be typically a listing of any promotional inquiries. So if you've ever received any mail that has offered you a new credit card, maybe some promotional interest rates, tells you that you're pre-approved for a new credit account. Those types of offers are going to based on what are called promotional inquiries and they will show up in your credit report as well. So in terms of having access to the information in your credit report, obviously any potential lender or creditor has access to this information. But it's important for you to understand that you also have the right to access the information in your credit report. And in the US, every consumer has the right to request, for free, a credit report from each one of the credit bureaus or credit agencies each year. You can go online to www.annualcreditreport.com, and again, once per year, you can request your credit report for free from each one of the agencies. So there's a number of strategies that are suggested in terms of how should I go above monitoring the information in my credit report, how often or when should I be checking my credit report? One strategy is that, once every year you select to receive a credit report from each one of the bureaus. In a case like that, you'd be receiving three separate credit reports, one from each bureau, at one point throughout the year. Some of the advantages associated with that strategy are that sometimes the credit bureaus don't always have exactly the same set of information upon which to base your credit report. So by requesting reports from all three agencies at the same time, you can provide a much better coverage of the type of information that's out there that's going to determine some of the credit and lending decisions for you potentially in the near future. Another strategy is for you to, more regularly throughout the year, request your credit report from one of the individual bureaus. So, every three or four months, you could request a new credit report from one of the three bureaus that will provide you with more coverage throughout the year. And at least one credit report on a more regular basis than requesting them all from each of the bureaus only at one point during the year. How's the information in your credit report actually used? Well again, potential lenders and creditors have access to this information. So, any time you go out and apply for a loan, or any time you go out and attempt to open a new credit card account. The lender or the credit card company that you're working with will be able to access and obtain the information that's in your credit report to help them in making the decision of whether or not they're going to accept you on that loan contract or whether or not you'll qualify to open that credit card account. Information that's in your report as well as the credit score that's going to be associated with that information may help to make that determination in terms of whether not you qualify as well as some of the terms associated with those credit accounts. So on a loan contract, the information in your credit report, in addition to determining whether or not you qualify for the loan period, may determine the term lengths that you're eligible for or the interest rate that the lender may end up charging you. Same process on a credit card account. They'll look at the information in that credit report, along with the score that they might request that's based on that information, and make the determination from that information, whether or not you qualify for that credit card. [MUSIC] [NOISE]
