Credit, on the face of things, seems simple. As explained by the Federal Trade Commission, a simple definition of credit would be as follows: People borrow money to make purchases, then pay the lender later.
Unfortunately, credit card companies and other lenders charge borrowers in excess of the money they lend. This interest, various due dates, the proliferation of lenders and various other factors makes borrowing money in America relatively complicated.
Scores and reports
Anyone with a history of certain activity, especially borrowing, is likely to have enough information to create a credit score. These scores represent general financial health.
People use these scores to apply for jobs, rent homes or apply for further loans. Prospective employers, lenders or landlords review the information to determine the types of contract terms to offer the person in question.
Of course, even though they are important, there is more to financial health than just credit. Even those with temporarily damaged scores nearly always have access to a range of apartment rentals, electronic purchasing methods and so on.
Oversight and tracking
Credit reporting agencies are the organizations that keep track of all of this data. The Official Guide to Government Information and Services explains that there are three of these agencies, and that consumers may request free reports from each company once per year.
CRA data collection is robust. These complex operations track various consumer behavior and compile many kinds of information regarding:
- Bankruptcy
- Bill payment
- Civil law procedures
- Borrowing
- Residency status
Consumers have a relatively high degree of control when it comes to problems, such as discrepancies on credit reports. It could also be possible to freeze credit reports, preventing fraudulent activity. However, it is often beneficial to make these types of changes within the context of an extended financial plan.
