Act ch04 l03 English
Act ch04 l03 English
Act ch04 l03 English
CHAPTER 4, LESSON 3
NAME DATE
DIRECTIONS
Read John’s story and review the sample credit report. Then read the article How to Read Your Credit Report.
Use the information in your textbook (Chapter 4, Lesson 3), on the sample credit report, and from the article
to answer the questions.
John’s Story
John Doe moved to Los Angeles, California, three years ago after graduating from college.
He was offered an incredible job that he couldn’t pass up. He loves his job and is currently
saving as much money as he can to get enough for a down payment to buy a house. But he
thinks that’s going to take at least another year. He does all of his banking at Skyline Finan
cial in Los Angeles—checking, savings, and a money market account. He has one credit
card that he owes less than $900 on, and he just signed up for a new credit card from Ril
lards because he needed a new suit for work.
When he moved to Los Angeles, he bought a new car with a loan from M&X Finance. His
largest debt is his student loan that eats up about $350 every month. He makes minimum
payments on his credit card and student loan debt. Recently, John was considering trying
to save gas by buying a motorcycle to get around the city, and the motorcycle shop ran
his credit through their finance company—WB&T Dealer Finance. He also recently checked
with another insurance company—Allstop Insurance—to see if he could get a better deal on
his auto insurance.
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Sample Credit Report
Personal Information
Name: John Doe Social Security Number: 123-45-6789
Date of Birth: Jan 1, 2000 Phone Number: 555-765-4321
Address: 123 Seventh Street, Los Angeles, CA 54321
Credit Summary
Open and Paid Available Remaining Payment
Credit Accounts Credit Loan Balances History
Chart Credit $3,000 $870
M&X Finance $30,000 $23,456 30
US Dept of Ed $38,450
7 40
6 70
Accounts Accounts That
Shared With Have Been Sent
80
0
58
300
689
CREDIT SCORE 850
None None
Public Records
Bankruptcies: You currently have none in your file.
Judgments: You currently have none in your file.
Liens: You currently have none in your file.
Credit Inquiries
Hard Inquiries
Date Company
Aug 1, 2021 WB&T Dealer Finance
July 3, 2021 Sesame National Bank
Soft Inquiries
Date Company Description
July 5, 2021 Allstop Ins. Co. Promotional Inquiry
June 23, 2021 Rillards Promotional Inquiry
services through them (though in many additional debt payments based on their
states, it’s illegal for them to deny you income and other debt they might carry.
service because of bad credit). Borrowers with higher capacity will have a
• Certain government agencies may higher credit score. Capacity usually increas
pull your report only if they have a good es with income, but a lender also wants a
reason to do so. The most common borrower to have a steady income. Again, a
reason is when someone applies for borrower’s debt-to-income ratio will be low
government assistance. The government if they never take out any form of debt in the
wants to be aware of any other forms of first place.
income the person might have coming in.
Collateral
THE THREE C’S OF CREDIT A lender wants to make sure it won’t lose
When lenders are deciding whether or not money if a borrower can’t pay back a loan.
to give loans to people, they consider the Collateral is an asset (like a home or a car) that
three C’s of credit: character, capacity, and can be used to pay back a loan if a borrower
collateral. These factors help form a snap defaults. When a credit report lists a secured
shot of a potential borrower and the level of loan, like a mortgage, it’s less of a risk for
risk associated with loaning them money. lenders because the house is an asset that
can be used for collateral. The more secured
Character loans someone has, the higher their credit
This shows a lender how responsible some score. If a borrower doesn’t have collateral
one is in repaying debts. If the borrower’s to secure a loan, the lender might choose not
credit history shows late payments, the to give them a loan. A borrower can improve
lender might not be willing to trust them their collateral by having valuable assets.
with a new loan. Someone who carries debt
and is late on their payments will have a low HOW TO GET A CREDIT REPORT
er credit score. Borrowers can improve their You’re allowed one free copy of your credit
character by checking their credit score for report every year from each of the major
accuracy and not taking out debt, so they credit-reporting agencies we just talked
don’t have to worry about late payments. about. But the reports aren’t automatically
mailed to you—you have to ask for them!
Capacity And since each agency keeps different
This measures a borrower’s ability to re details on file, it’s worth checking with all
pay a loan by considering their debt-to-in three. If you play your cards right, you can
come (DTI) ratio. Lenders try to determine even stagger them so you’re getting a free
if someone has enough money to make report nearly every quarter.
Now that you know how to get your • Remaining loan balances
credit report, we’ll walk you through the • Late payments
four major areas you need to check for any • Accounts that have been sent to
red flags. These could help you spot poten collections
tial identity theft situations, so listen up!
RED FLAGS Read and reread this section to
HOW TO READ YOUR CREDIT REPORT make sure everything listed is right. Got it?
Identifying Information Okay. Now check again. Seriously. Look for
This section has any personal information any accounts that were opened and sound
that could be used to identify you, including: unfamiliar, and check for payments being
• Name noted as late when they actually weren’t.
• Address If you’ve closed a credit card account,
• Social Security number confirm it’s showing up as closed on your
• Date of birth credit report. Also, make sure no lines of
• Phone number credit have been opened in your name with
out your consent—that’s a huge red flag and
RED FLAGS Everything in this section needs to might mean you’re at risk of identity theft.
refer to you and not someone else who hap
pens to share your name. And while you’re Public Records
at it, go ahead and double-check the Social You want this part to be blank. The financial
Security number—just in case. activity listed here—like bankruptcy, tax
Make sure all the addresses listed are liens, and judgments—is taken from public
places you’ve actually lived. If you’ve never records, and some things can stay on your
been to Waxahachie, Texas, but the report credit report for upwards of 7–10 years.
says you lived there for seven years, you
might want to follow up on that. We’ll share RED FLAGS It’s pretty rare to find an error in
later what steps to follow if you do find er this part of the report, but it’s worth scan
rors in your report. ning anyway. Mistakes in this section should
be cleared up ASAP.
Credit History
The bulk of the report is in this section. Your Inquiries
credit history includes: Here you’ll see detailed listings of every
• Open and paid credit accounts, like business that has requested your credit
credit cards, mortgages, and loans report. There are two types of credit in
• Accounts shared with someone else quiries: soft and hard. Soft inquiries are
• Total loan amounts just from companies wanting to send you
promotional materials or current creditors You might also see a “U” if the account
checking your financial status. Hard inqui is new and you haven’t made any payments
ries are made when you actually apply for a on it yet. It doesn’t have a negative impact
credit card, loan, or mortgage. on your credit score and isn’t anything to
really worry about.
RED FLAGS Hard inquiries cause your credit
score to drop a few points, so be sure you’ve WHO CAN SEE MY CREDIT REPORT?
truly given your permission for a hard inquiry Most people can’t legally use your per
to your credit. These should disappear from sonal information to access your credit
your report after about two years. report. However, there are several types of
organizations that are allowed to pull your
WHAT DOES AN “OPEN ACCOUNT” credit: banks, creditors, lenders, insurance
MEAN ON MY CREDIT REPORT? companies, potential landlords, collec
An open account is any line of credit you’ve tions agencies, potential employers, and
opened and never officially closed. You the government.
know, like that paid-off department store The laws about who can access your
credit card you forgot to call about and credit score are different from state to
cancel. Even if you haven’t used a credit state. If you’re worried at all, do some re
card for a few years, it will still show up as an search and find out what the law is where
open account on your credit report until you you live.
contact the company to close the account.
So stop having cold feet and just go ahead WHERE CAN I FIND MY
and close it for good. CREDIT SCORE?
If you got a free credit report, don’t be sur
WHAT DOES A “U” STAND FOR prised when it doesn’t include your credit
ON A CREDIT REPORT? score. To see that, you’ll have to use a free
University of Credit Reporting? Nope. The web service or pay for it through myFico.
“U” means “unclassified,” or that the ac com or another credit bureau.
count hadn’t been updated at the time the
report was pulled. It’s one of many status
codes that can appear next to an account
on your credit report. Codes like this usually
indicate a problem with the account, like it
being past due or sent to collections.
But keep in mind, when it all comes down But hard inquiries require your actual
to it, a credit score is really just an “I love consent before they can happen. These
debt” score. That’s right, a “good score” impact your credit score and can’t legally
simply shows how well you’ve played the be done without you knowing, so breathe
debt game. It doesn’t reflect your actual net easy. If you notice a hard inquiry you didn’t
worth or the amount of money you have in authorize, you’ll need to dispute it with the
the bank. In other words, it’s nothing to be credit agency.
proud of. The only way to keep your stellar
credit score is to live in debt and stay there. HOW TO DISPUTE INACCURACIES
No thanks! Any mistakes on your credit report need to
It’s possible to live life without a credit be taken up with the agency that shows the
score, which is exactly what Dave recom error. Write a letter that lists each incorrect
mends. But that doesn’t mean you should item you found and why you’re disputing it.
trash your credit to lower it! Just start paying Let’s say you closed a credit card, but it
off your debt, close your credit accounts still shows up as an open account on your
once they’re paid off, and don’t take on credit report. Here’s what you need to do:
any new debt. If you’re following the Baby Gather up documents and any evidence
Steps, you should reach that indetermin you might have to prove it’s a mistake.
able score within a few months to a few Then, send all of this by certified mail—and
years. Remember: No credit is not the same don’t forget a return receipt! The agency
as having a low credit score. has only 30 days to respond, so you should
see some movement pretty quickly.
CAN SOMEONE RUN A CREDIT
REPORT WITHOUT ME KNOWING? AVOID IDENTITY THEFT
It depends. Like we said earlier, there are Your credit report might seem complicated
soft inquiries and hard inquiries. Soft in at first, but now that you know what to look
quiries happen all the time without you for, hopefully it’s not so daunting. It’s never
even knowing—a company might check a bad idea to be proactive and make sure
your credit score if they’re planning on everything is correct. Staying on top of your
mailing you a promotional offer. These credit report is a great way to guard your
inquiries don’t affect your credit score self from identity theft, so make sure you’re
at all. protected!
2. Why is it important to check your credit report? How often should you check it?
3. According to the article, what are the three main credit-reporting companies?
4. What does a “U” stand for on a credit report? What does it mean? Is it concerning?
Does a “U” appear on John’s report?
5. Has John been managing his debt payments? What’s his payment history?
7. Identify anything on John’s credit report that looks suspicious or is a red flag.
8. Can someone run your credit report without you knowing about it? Explain.
9. If you see a mistake on your credit report, who should you contact? How should you
contact them?
11. How can character impact your credit rating and your ability to obtain credit?
12. How can capacity impact your credit rating and your ability to obtain credit?
13. How can collateral impact your credit rating and your ability to obtain credit?
14. Who are some people who might need to look at your credit report?