Credit 101

Credit can be a confusing concept. CAP wants to make it simple for you! This post is a guide to credit, credit bureaus, credit reports and more.

What is credit?

Your “credit” refers to your ability to borrow money and how much you can borrow. Your “credit score” is determined by your credit history, and suggests how likely you are to repay your loans.

What is a credit bureau?

As noted in our September 2017 blog post, credit bureaus receive regular reports about your credit history from banks, financial institutions, landlords, utilities, and even employers. The credit bureaus then put all of this information about your use of credit together into a single file — your “credit report.”

What is a credit report?

A credit report provides you with a detailed overview of your credit history prepared by the credit bureau. A credit report includes sensitive information, such as your Social Security number and history of employment. It will also indicate whether or not your accounts are in good standing and when they were opened.

How can I get my free credit report?

The Fair Credit Reporting Act (FCRA) requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide consumers with a free copy of their credit report once every 12 months.

To access your free credit report, you can…

  1. Visit annualcreditreport.com or call 1-877-322-8228.
  2. Complete the Annual Credit Report Request Form and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.
  3. Contact the three nationwide credit reporting companies individually:

Equifax: 1-800-685-1111 equifax.com

Experian: 1-888-397-3742 experian.com

TransUnion: 1-800-916-8800 transunion.com

Did you notice something suspicious on your credit report?

Under the Fair Credit Reporting Act, both the credit reporting company and the information provider are responsible for correcting inaccurate or incomplete information in your report.

To dispute an error on your credit report, follow these steps provided by the Consumer Financial Protection Bureau.

What is a credit freeze?

This free tool lets you restrict access to your credit report, which makes it more difficult for identity thieves to open new accounts in your name. A credit freeze does not affect your credit score, it just protects your credit. Under a freeze, you can still access your free annual credit report, and it does not affect your ability to apply for a job, rent an apartment, or buy insurance. However, if you are opening a new account, you will need to lift the freeze temporarily. Lifting the freeze is free.

Want to learn more about credit freezes? Check out this helpful FAQ page produced by the Federal Trade Commission.

What is a credit fraud alert?

A credit fraud alert is a free tool that makes it more difficult for identity theft and/or fraud to occur. According to the FTC, when you have a fraud alert in place, a business must verify your identity before it issues credit. Once you place the alert, it will be active for one year.

To place a credit fraud alert, contact one credit bureau and ask to place the alert. That credit bureau will then contact the other two bureaus.

Are you suspicious that identity theft has occurred?

If you see items on your credit report that might signal fraud, you can file an identity theft report with the Federal Trade Commission. Reporting identity theft to your local police is another important step in this process.

Signs of fraud on a credit report may include unfamiliar accounts and charges. The FTC provides a helpful list of other identity theft warning signs, including:

  • Inexplicable withdrawals from your bank account
  • Merchants refuse your checks
  • The IRS warns you that more than one tax return was filed in your name
  • You receive an official notice concerning a data breach that may have affected you

Questions about checking your credit and/or identity theft? Call the Consumer Assistance Program! (800) 649-2424

Protect Your Credit: Get a Free Freeze

Credit on ice

Under the Economic Growth, Regulatory Relief and Consumer Protection Act, credit freezes are free of charge to anybody, regardless of whether or not they are victims of identity theft. This new law requires credit-reporting agencies to eliminate the cost of credit freezes, credit unfreezes (thaws) and yearlong fraud alerts to consumers.

Website Required:  The three major credit bureaus, Equifax, TransUnion, and Experian must design a website, where consumers can go to request this credit protection. The sites must also provide the ability to opt-out of receiving solicitations in the mail for insurance or credit card approval.

Protection for Children: The act allows guardians to request on behalf of children younger than 16 years old to freeze their credit.

Military Credit Offers: Members of the military with access to active duty alerts can request to remove their name from prescreened credit card offers for two years.


Why Should You Consider a Credit Freeze?

Identity theft is a type of fraud, which can be extremely detrimental to your financial and personal well-being. Identity theft often occurs when a bad actor gets access to your social security number or financial account number. Many consumers believe they won’t become targets for identity theft, because:

  • They odds are slim and assume it won’t happen to them.
  • They don’t have much money in their bank accounts to steal.
  • They don’t have credit cards and assume this means they don’t have a credit history.
  • They don’t have a poor credit history and believe a scammer will not benefit from having their information.

These arguments do NOT prevent bad actors from opening accounts using your information. The main concern is not the money you have but whether new accounts can be open without your knowledge, or consent.


Protect Your Credit

Issuing a credit freeze essentially stops any credit-reporting agency from reporting your credit score or credit report to a lender. Credit reports help lenders decide whether or not to extend a line of credit or grant loans to consumers. Often, without the ability to see the credit report, lenders will deny the credit line or loan, therefore protecting the consumer from unwanted accounts in their name.

Concerned that you may seek a line of credit in the future?—The thaw can help with that. You can contact the company before you plan to take on a new line of credit and lift the freeze temporarily.

The credit freeze is the best line of defense against bad actors stealing your information and using it for their own financial gain. Now that this process is free, anyone can consider placing a credit freeze on their account!

For more information about credit freezes or credit fraud alerts, visit FTC.gov or call our consumer helpline at 1-800-649-2424.

Contributing Writer: Alexandra Esposito
Content Editor: Crystal Baldwin

Sources:  The Federal Trade Commission