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credit reporting article

By Kelli Jo Buettner, FCS Financial Vice President of Scored Lending and Credit Operations

As a farmer or rancher, you know the importance of good record-keeping and using it to track the progress of your operation.  Predicting or estimating results is part of your daily decision making.  You spend time watching weather reports, reading publications, and looking back on previous experiences to make decisions.  Similarly, your lender uses a variety of information sources to analyze risk and predict future credit behavior when making financing decisions. One of those sources is your credit report.

Essentially a grade card for your financial management, your credit report verifies your identity and illustrates how you handle financial obligations. It includes your social security number, date of birth, current and past addresses, occupation, financial history, and details past and present performance on loans and credit card accounts. It also often includes information related to judgments, liens, bankruptcies, and collection accounts.

The information comes from the creditors and lenders with whom you do business. The three major credit bureaus are Equifax, Experian, and TransUnion. Lenders may voluntarily share information with any of them. Creditors have the right to choose which of the three bureaus they furnish information to, which means your credit report from each bureau may contain slightly different information.  Your credit report can affect approvals, interest rates, terms, and more. It’s critical you understand what information is in your credit report and how it may impact your farm operation.

Similarly, it is important that you understand your credit score. Derived from the information contained in your credit report, your credit score is a quick measure of financial health. In addition to the three different credit bureaus, there are several widely used scoring models. Depending on the bureau and model used, your score may vary slightly.

A score generated by Fair Isaac Company known as the FICO score is commonly referenced.  FICO scores range from 300-850, and they move constantly as information is reported.  While there is no magic recipe for a perfect score, your score is influenced by your payment history (35%), debt level (30%), length of credit history (15%), new accounts (10%), and types of credit in use (10%).

The credit reporting process is governed by the Fair Credit Reporting Act (FCRA), which requires data furnishers (creditors and lenders) to provide timely and accurate information to the credit reporting agencies. Under the FCRA, you have the right to obtain a free personal credit report from each of the three major bureaus each year.  You may access your free reports by visiting www.annualcreditreport.com. Review your reports for accuracy even if you don’t finance your operation with debt to ensure you aren’t a victim of identity theft. If you find errors or fraudulent activity in your reports, contact the appropriate bureau to launch an investigation. 

Additionally, free credit education apps are accessible online. Companies like Credit Karma offer access to your credit report with multiple bureaus if you agree to view the ads on their site or app. They may also include estimates of your credit score free of charge. The online apps allow you to actively monitor your credit report more than once a year and offer tips to improve your credit score.

The next time you visit with your lender, ask if they use credit bureau reports or scores in making decisions.  If they do, share the information you know is in your report. Your lender understands your credit report is a good indicator of future behavior, but certainly not a perfect one.  Just as you watch your freshly cut hay get wet and think back to the sunny forecast, sometimes indicators aren’t representative of the whole story.

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