Building a Better Credit Report (Part 4)
What is a fraud alert?
Unlike a credit freeze that locks down your credit, a fraud alert allows creditors to get a copy of your credit report as long as they take steps to verify your identity. For example, if you provide a telephone number, the business must call you to verify whether you are the person making the credit request. Fraud alerts may be effective at stopping someone from opening new credit accounts in your name, but they may not prevent the misuse of your existing accounts. You still need to monitor all bank, credit card, and insurance statements for fraudulent transactions. There are three types of fraud alerts.
Initial Fraud Alert
If you're concerned about identity theft but haven't yet become a victim, this fraud alert protects your credit from unverified access for at least 90 days. You may want to place a fraud alert on your file if your wallet, Social Security card, or other personal, financial, or account information is ever lost or stolen.
Extended Fraud Alert
For victims of identity theft, an extended fraud alert protects your credit for 7 years.
Active Duty Military Alert
For those in the military who want to protect their credit while deployed, this type of fraud alert lasts for 1 year. To place a fraud alert on your credit reports, contact one of the nationwide credit reporting companies. A fraud alert is free. You must provide proof of your identity. The company you call must tell the other companies; they, in turn, will place an alert on their versions of your report.
What is a credit score?
Credit scoring is a system creditors use to help determine whether to give you credit. It also may be used to help decide the credit terms you are offered or the rate you will pay for the loan. Information about you and your credit experiences, like your bill-paying history, the number and type of accounts you have, whether you pay your bills by the date they're due, collection actions, outstanding debt, and the age of your accounts, is collected from your credit report. Using a statistical program, creditors compare this information to the loan repayment history of consumers with similar profiles. For example, a credit scoring system awards points for each factor that helps predict who is most likely to repay a debt. The total number of points—a credit score—helps predict how creditworthy you are: how likely it is that you will repay a loan and make the payments when they're due. A higher credit score is taken to mean you are less of a risk, which, in turn, means you are more likely to get credit or insurance—or pay less for it.
U.S. Federal Trade Commission. (2014). Building a better credit report. Retrieved January 10, 2019, from https://www.consumer.ftc.gov/