Credit reports are a valuable part of any comprehensive background check for employment or personal purposes. Such information provides insights into an individual’s financial responsibility over several years.
It is important to note that one’s credit score is not included in a background screening credit report for employment (a FICO score is included with certain personal background check packages). Employers will not see a credit score. What is included, however, can tell an even more complete story.
Where Does the Information Come From?
Whether you, as an individual, are ordering a personal background check or a prospective employer is conducting a background check on you, credit information is retrieved from data collection agencies known as credit bureaus. These bureaus gather information from various creditors and provide it to consumer reporting agencies nationwide. Now, there are three main credit bureaus in the United States. The three credit data titans are Experian, Equifax, and TransUnion.
What is Included in a Credit Report?
A credit report essentially summarizes how one has handled their accounts. The information provided within can include the types of accounts currently active under their name, payment history, as well as other information reported by the credit bureaus, such as negative marks.
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What Are Negative Marks/Items on a Credit Report?
Lenders are concerned with one thing, and one thing alone— getting their money back. For this reason, failure to make payments or adequately reimburse credit lines can cause a number of problems for one’s credit report. In fact, it is the most weighty factor in determining one’s credit score. If payments and accounts are mishandled, creditors will report such things to the bureaus, introducing “negative marks” to a credit report.
Here are some common negative items one may encounter:
Late Payment
Late payments are recorded when an individual is delinquent on a payment for a certain period of time. Typically, this will be after 30,60, or 90 days, depending on the lender.
Collection
Collections are a continuation of debt owed and can remain on a credit report for up to 7 years. Late payments will eventually become collections if the account is not brought to current after an extended period.
Charge-Off
A charge-off essentially means that a creditor pursuing an individual to get them to make good on their debt has given up hope of payment and has closed the account.
Repossession
When an individual defaults on loan payments towards an asset in their possession, the party having right-to-ownership can take the property back without invoking the help of a court; this is most common with financed vehicles.
Foreclosure
Foreclosure is much the same concept as repossession but deals explicitly with homes. When the right-to-possess party fails to make mortgage payments, they can face foreclosure.
Bankruptcy
Put simply, bankruptcy is a legal proceeding that allows individuals (or business entities) freedom from their debts. This does not mean that debts go entirely unpaid; it just means that debts are restructured or assets are sold off in order to cover them.
Tax Leins
Tax liens are imposed when one has failed to pay their taxes.
Judgments
Judgments are amounts owed as mandated by a court of law. In most instances, these are civil penalties.
Inaccuracies in Your Report
In a recent study, it was found that more than one-third of participants had errors on their credit reports. These errors ranged from relatively insignificant to very damaging.
The good news is every individual in the U.S. has the right to accurate credit reports. If inaccuracies are found, they can be disputed with the credit bureaus, and they must be removed.
Takeaways
Credit bureaus hold the data that can significantly influence our ability to receive a loan, affect interest rates, affect one’s freedom to refinance for lower monthly payments, and, in some cases, obtain needful employment (i.e., financial or accounting jobs where a person has access to customer credit card information or sensitive and confidential financial records). Knowing what is on your credit reports is important to detect possible reporting errors and work towards improved credit.
Are you an individual interested in obtaining a full credit report? You can order one here.
