Free Annual Credit Report

Erica Sandberg talks very briefly about how to get your FICO score and the difference between your free annual credit report and the credit score that is compiled by Fair Isaac. Additionally, she gives a quick hint on how to get a free credit score by contacting a mortgage broker or other lender.

The federal Fair Credit Reporting Act and state credit reporting laws restrict who can access your credit report and how it can be used. Although you can get your Free Annual Credit Report every year, there are a number of different people and entities that can request your credit report. These include:

• Employers
  Employers often use credit reports to conduct background checks of job applicants and to assess current employees for promotions or job reassignments. Before ordering your credit report, employers must first get your written authorization and provide certain disclosures.
  Many employers never look at credit reports. And those that do often will not be concerned about your financial problems. If
  you do have some negative information on your report, you might want to discuss it with the employer before he or she sees the report.

• Government agencies
  Government agencies can request your credit report to determine whether you are eligible for public assistance. They do this to look for
  any hidden income or assets you might have, not to see if you have unpaid bills. The law also allows state and local government officials
  to get reports to help determine whether you can make child support payments.

• Insurance Companies
  Insurance companies can look at your credit report. Usually, they are not interested in your credit history, but instead may ask about your medical history or about any insurance claims you have filed.

• Collection Agencies
  Collection agencies can look at your report when trying to collect an overdue debt from you. They mainly do this to try to locate you
  or find out more about your assets.

• Judgment Creditors
  Judgment creditors are allowed to look at credit reports in order to decide whether to begin collection efforts against you. They can also use reports for skip tracing.

• Potential Creditors
  Creditors are allowed to review your report when you apply for credit. Although this is a broad category, there are some restrictions. For
  a new transaction, you must have made an offer or otherwise initiated a credit transaction before the creditor can look at your report. It
  is important to be careful when you are shopping around, especially for cars. Dealers will try to get you to sign an authorization so that
  they can look at your report and size up your financial situation before beginning their sales pitch. This request will then appear on your
  credit report and may negatively affect your credit.

• Landlords and Mortgage Lenders
  Landlords and mortgage lenders are also allowed to review your report. You can expect mortgage lenders to scrutinize your report
  very carefully before offering to lend you money to buy a home.

As you can see, there are alot of eyes looking at your credit report. This is why it is important that you always have a copy of your Free Annual Credit Report so you know exactly what info is being shared about you.

FICO is an acronym for Fair Isaac Corporation often refers to the best-known credit score in the United States which is calculated using mathematical formula developed by this company. This score is one of the most important factors in obtaining credit in the United States. For institutions that use scores as a factor in their lending decisions, scores below certain numbers may result in denial of credit, or credit being offered at a higher interest rate. This is different than the Free Annual Credit Report that you are entitled to yearly.

The three major credit reporting agencies in the United States, (Equifax, Experian and TransUnion) calculate their own FICO scores, which go by different trademark names as well as many different versions of the score: For example Beacon, Beacon 96 and the Pinnacle are all available only from Equifax; Empirica Empirica Auto 95 Precision Score and Precision 03 at Trans Union, and Fair Isaac Risk Score at Experian. These versions, while all developed for the agencies by Fair Isaac, differ and are periodically updated to reflect current consumer repayment behavior. The NextGen Scores are the most recent scores, but creditors vary in which version they prefer to use.

The scores use a multiple scorecard design. Each version uses 10 or more individual scorecards, and an individual is typically compared with similar others. An individual is then graded according to what variables seem to indicate a repayment risk in that group. This feature may cause a borrower with delinquencies to score in the same range as a borrower without delinquencies.

It is worth mentioning that each of these credit reporting agencies also have developed their own separate proprietary versions of a credit score intended to compete with Fair Isaac’s score. Although not as widely used, these scores are less expensive than the FICO score and, in some situations, may more accurately predict the risk level of a prospective borrower. The cost savings of a non-FICO score are tempting to some banks and credit card companies, who need an accurate risk assessment on millions of accounts every year. Only time will tell if these alternative scores will displace Fair Isaac from its dominant position in the U.S. market for credit scores.

Nearly all large banks also build and use their own proprietary statistical models for credit scoring purposes, often in conjunction with the FICO score or other outside scores.

The statistical models that generate credit scores are subject to federal regulations. The Federal Reserve Board’s Regulation B, which implements the Equal Credit Opportunity Act, expressly prohibits a credit scoring model from considering any prohibited basis such as race, color, religion, national origin, sex, or marital status. Regulation B also stipulates that credit scoring models must be empirically derived and statistically sound. Furthermore, if an adverse action is taken as a result of the credit score then specific reasons for the denial must be provided to the individual. A statement that the individual “failed to score high enough” is insufficient; the reasons must be specific.

There exist several generally accepted algorithms for extracting the primary contributing factors to a low credit score. One or more of these algorithms is typically used to supply a list of reasons when a loan applicant has been denied credit, in order to satisfy the Regulation B requirement that specific reasons are disclosed. Some consumers feel these adverse action reasons are somewhat disingenuous, as the only determining factor for credit denials is a numeric score — the “reasons” are summed up only for the consumer.

As mentioned above, each credit bureau also has one or more of its own generic credit scores, available both to consumers on their websites and to lenders. For ease of use, these scores tend to be mathematically scaled so that they fall in the same general range as the FICO score. These scores are used by some businesses to assess creditworthiness (otherwise they would not be offered), however the FICO score remains the dominant score in use today.

You can get your FICO score from various venders including GoFreeCredit available at: Free Annual Credit Report.