Know Your Credit Report

By Tera Dover, FCS Financial Assistant Vice President in our Springfield Office

As farmers, ranchers and producers you know the importance of good record keeping and use it often to track the progress of your operations.  Predicting or estimating results is a part of your daily decision making process.  You spend time watching weather reports, reading publications and looking back on previous experiences to make decisions.  Some producers use Expected Progeny Differences (EPDs) to predict performance and select possible traits in animal offspring.  As you know your lender also uses a variety of information when working with your operation.  Lenders use information with each credit decision to analyze risk and predict future behavior.  One of those predictors is a credit report.

Credit reporting and associated scores have been a part of consumer lending for many years. We now see more and more agricultural credit providers not just using a credit report and score in their decision process but also reporting their own information back.  An individual’s history can follow them for years and can impact future approvals, interest rates, terms and more.  Most likely your farm operation is influenced in some fashion by your credit report even if you have no debt.  It is helpful to understand how scores are derived, what they mean and how decisions you make impact them.

There are three major credit bureaus that collect voluntary information from creditors.  They include Equifax, Experian and Trans Union. Creditors are not required to submit information and may give it to one or more of the separate bureaus.  A credit report typically gives the following details: name of the creditor, date the account was opened, amount of the highest credit or original loan amount, required payment, the unpaid balance, current status of the account and payment history.  A credit report can also contain information related to judgments, liens, bankruptcies and collection accounts.

The Fair Credit Reporting Act gives every consumer the opportunity to obtain one free personal credit report from each of the three major bureaus per year.  It is important to review this information for accuracy and a request for a report can be obtained by calling 1-877-322-8228 or going online to www.annualcreditreport.com.  If you find errors within your report contact the bureau about the appropriate process to open an investigation.  The credit reports you obtain will not include a score as the bureaus themselves do not formulate the information into a scoring model.

The company Fair Isaac created and began using the scoring system that we most commonly hear about today.  It is called the FICO score and can range from 300-850.  The score is constantly moving as information is reported.  Remember, there is no magic recipe for a perfect score.  Your score is not only influenced by your payment history but a variety of factors obtained from the credit bureaus.  The general model of influence is:  35% on payment history, 30% on the amount of debt, 15% on length of credit history, 10% on new credit openings and 10% on types of credit in use. Negative history is only corrected by time and consistent responsible behavior.

The next time you visit with your lender ask if they use a credit bureau report and score.  Remember the credit report is a good indicator of future behavior but not a perfect one.  Just as you watch your freshly  cut hay get wet and think back to the sunny report, sometimes the indicators aren’t completely the whole story.

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FICO information taken from www.myfico.com