When you apply for a credit card, the card company submits an inquiry
to a credit bureau to obtain a copy of your credit report
. The credit report contains your credit history
, which will be used to help it make a credit decision.
Your credit report reveals your credit score
. The card company uses this information, along with other lending criteria, to make a decision. Contrary to common belief, lenders do not base their credit decision only on your credit score.
Additional myths about your credit report include:
Your credit report is a single report. The three major credit bureaus are Experian, Trans Union and Equifax. These are also called national data banks or consumer-reporting agencies. Information on the major three credit bureaus is shown below.
Your credit reports are accurate. Errors, omissions and discrepancies often exist between your credit reports from each of the three bureaus. The longer your credit history, the greater the chance of these occurring. As a result, it pays to review all three credit reports every year or so. If you find incorrect information, contact the creditor directly to have it fixed.
Credit inquiries don't "ding" a credit report.
Each time you apply for credit, the creditor obtains your credit report. Not
doing so would constitute the creditor's failure to perform due diligence
. These inquiries show up on your credit report. Although lenders may forgive a lot of inquiries that tend to occur when you buy a car or home, excessive inquiries from credit card companies is frowned upon.
Major credit bureaus:
The Fair Credit Reporting Act (FCRA)
protects you if you've been denied credit. The law requires a lender that denies credit to a consumer based on a credit report to:
Notify the consumer of the decision to deny credit.
Explain the item in the credit report that led to the decision.
Identify the credit bureau or bureaus that furnished the credit report.
Authorize the consumer to obtain and dispute a free credit report from that bureau.
You have 60 days to request the credit report. The credit bureau is required to notify you of your claim and correct any errors within 30 days. The law was amended in 1997 to add further protections from potential abuses of credit bureau information.
The above information is educational and should not be interpreted as financial advice. For advice that is specific to your circumstances, you should consult a financial or tax adviser.