Your credit report contains a lot of unusual terms; you should know what they mean

Most people know by now that the three main credit bureaus keep track of their financial history by means of a credit report. This is a document that is made available to all lenders and creditors who might wish to do business with a particular individual. If a consumer wants a credit card or a loan, the lender will first check their credit history in order to see if that person has a record of paying bills and of paying them in full, and on time. From that information, the lender can decide whether or not to grant the loan.

Below are some useful terms that might be found on a credit report or used by an individual working for a lender:

• Bankruptcy - A filing in a court of law that allows a consumer to have his or her debts absolved. The lenders don’t get any money, but the consumer gets a fresh start. The bankruptcy judgment will stay on his or her report for ten years, which may make it more difficult to obtain loans in the future.
• Charge-off - An unpaid debt that a creditor has turned over to a collection agency. This debt has been written off as a loss by the lender and will show up on your report as a negative item. A charge-off can have a serious impact on your FICO score.
• Credit bureau - One of several different companies (Experian, Trans Union and Equifax are the largest) that maintains a database of financial information on individuals. They make this information available to business for a fee in the form of financial reports.
• Credit limit -The maximum amount of money that may be owed at any one time on a line of credit or on a credit card. Exceeding this limit is possible, but it usually involves penalty fees.
• Credit Report - A document made available to businesses by the financial bureaus that includes a complete history of financial transactions by an individual, showing bills paid on time and in full as well as defaults, judgments, liens and delinquent accounts. These reports are used by lenders to determine whether or not someone is a good risk for a loan.

Consumers are urged to check their financial history regularly to make sure the information contained within it is accurate. You can do so for free at annualcreditreport.com, or you can get one from any of the credit bureaus if you have been turned down for a loan within the past 30 days. Often, when people look at their record, they don’t know what they are seeing. This industry, like any other, has its own terminology and people who aren’t familiar with it might be confused at some of the terms used. For that reason, we will offer a simple glossary of terms that might help the layman better understand how the reporting system works.

More on the Scoring Glossary in part two

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