Credit can play an important role in your daily life. For example, you may use a credit card to make purchases, or you may obtain a loan from your bank to finance the purchase of a car or house. The importance of credit in your life, however, is not limited to loans. If you apply for a job, a potential employer can obtain a copy of your credit report to verify your employment history. If you want to lease an apartment, the landlord can obtain your credit report to determine whether you will be a reliable tenant. Therefore, it is important that you understand how credit applications are approved or denied and what your legal rights are if you are treated unfairly. The major federal laws that regulate credit are summarized in the drop down menu under Your Credit Rights.
You should review your three major credit reports at least once a year to ensure that they are accurate and do not contain any errors. Under federal law, you are entitled to one free credit report each year from Equifax, Experian, and TransUnion. If you find an error in any of your reports, you should contact the credit bureau immediately. The FCRA requires credit bureaus to investigate a consumer dispute within 30 days. If your dispute is validated, the inaccurate information will be removed. The source of the error must then notify all credit bureaus to which the information was sent. If you are not satisfied with the correction, you have the right to add a brief statement to your credit report about the nature of the dispute.
If you apply for credit, such as a car loan, and your credit application is denied because of negative information in your credit report, the lender is required to provide the name, address, and telephone number of the credit bureau that issued the report. You then have 60 days to request a free copy of the report from the credit bureau, which must disclose all information in the report, its source, and who recently received the report. In addition, you are entitled to receive a copy of your credit score whenever you apply for credit, insurance, employment, or a government benefit and the application is denied because of your credit score. You have the right to have the credit bureau reissue corrected reports to lenders who received an erroneous report within the past six months or to employers who received one in the past two years.
Each of the three credit bureaus calculates a credit score for you based on information in your credit report. Credit scores measure your credit worthiness. Your credit score is presented as a number that can fall within a range — usually from 300 to 850. However, some credit scoring products use different ranges — such as 501 to 990. If you obtain multiple credit scores and the same range was not used, you cannot directly compare the scores. For example, a credit score of 720 within the 300 to 850 range is not the same as a credit score of 720 using the 501 to 990 range.
Creditors rely on credit scores when you apply for credit. Applicants with high credit scores are more likely to be approved for credit and obtain good interest rates, whereas borrowers with low credit scores are more likely to be denied credit or pay higher rates.
See the drop down tabs under Your Credit Rights to view credit laws.