A credit report is a record of your credit history as reported to credit bureaus by your bank, credit card companies, department stores, and other businesses you’ve borrowed from. Potential lenders use the information in your credit report to decide whether they want to take the risk of issuing you credit.
If you understand how credit reports work, you can protect your rights and avoid being taken advantage of by unscrupulous credit repair clinics and so-called credit doctors.
Under the Fair Credit Reporting Act, you have specific rights related to your credit report. You can read about these rights on the Federal Trade Commission’s (FTC) website at www.ftc.gov.
If you’re thinking about buying a house or applying for credit for any other big purchase, you’ll need a good credit report. It’s always best to know what’s on it before your lender does, so you’ll have an opportunity to clean up any discrepancies or errors.
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How to Get a Free Credit report?
Three major credit reporting agencies offer free copies of credit reports each year: Equifax, Experian, and TransUnion. If you order directly from AnnualCreditReport.com, you can get all three reports for free.
Financial advisors recommend that you obtain a copy of your credit report at least once a year and review it carefully. The Fair Credit Reporting Act allows you to get one free credit report from each credit reporting company every year.
If you’ve been turned down for credit, housing, or employment because of information in your report, you may be entitled to an additional free copy of your credit report. Some states require that credit bureaus provide free copies or charge a reduced price for residents of that state, so you may find a variety of ways to get more than one free credit report per year from each credit reporting company.
As mentioned previously, there are three main credit bureaus: Equifax, Experian, and TransUnion. Because some creditors report to only one of the bureaus, the information in your credit report may differ somewhat from one bureau to the other; experts recommend that you obtain a copy of your report from each of the three major credit bureaus once a year.
To order your credit reports use the official site created by the three major credit reporting companies: www.annualcreditreport.com. If you use a different site, it’s likely that you won’t get your credit reports for free.
Many imposter sites claim to offer free reports and credit scores, but they will want a fee from you sooner or later, or they might just be phishing for your personal information. If you find an error in your credit report, send a letter to the credit bureau explaining the error in as much detail as possible.
You can find sample letters on the Consumer Financial Protection Bureau (CFPB) website at www.consumerfinance.gov. Provide any documents that help prove your statements. Send everything certified mail, return receipt requested. If you don’t get an answer within forty days or so, follow up with them.
What’s in a Credit Report?
Your credit report includes the following basic personal information:
- Name
- Current and previous addresses
- Telephone number
- Social Security number
- Date of birth
- Current and previous employers
The credit history section includes information about each credit account, including the date opened, credit limit or loan amount, balance, monthly payment, and your payment pattern during the past several years.
Bankruptcies, accounts sent to collection agencies, unpaid child support or alimony, tax liens, car repossessions, court records of tax liens and monetary judgments, and the names of businesses or individuals who have obtained a copy of your credit report are also included. In addition, your report contains information obtained from public records, such as your job history, whether you own your home, and whether you’ve filed for bankruptcy.
When issues between you and a creditor can’t be resolved, the comments and explanations you’re allowed to add to your credit report and the creditor’s response to your statements become part of your credit report. If an account was turned over to a collection agency, your report will include it as a “collection account” until it’s paid in full; then it will be noted as a “paid collection” and will stay on your credit report for seven years from the date of the first missed payment.
What’s Not in Your Credit Report
Your credit report does not include information about your race or national origin, religion, personal lifestyle, political affiliation, medical history, criminal record, or other information unrelated to your credit history and ability to repay debt.
How to Read Your Credit Report?
In spite of minor differences in the way your credit reports are organized, all three bureaus should provide accurate information in these five sections.
1. Personal information
Your personal information includes your name (including any former names, aliases, and birth date), Social Security number, and date of birth. The contact information like phone numbers and email addresses will be included in your report.
Beware of typos and incorrect information!
Your credit report should contain all the correct information about you. Your credit report should refer only to you: not to your relatives, not to your ex-spouse, and especially not to another person with the same name.
It is possible that your report has been confused with someone else’s if they have a misspelled name (or incorrect middle initial), an address you do not know, an incorrect digit in your social security number, or a phone number that is not yours.
2. Employer history
Current and past employers are listed on your credit report. Employer history can be found in the Personal Information section.
Keep an eye out for all employers listed!
Since employment history has nothing to do with credit or debt, it does not affect your credit score. False information such as company names you do not recognize or employers for whom you have not worked is a red flag on your credit report.
3. Credit history
Of all the sections of your credit report, your credit history is the most important. A number of factors go into calculating your FICO credit score, including the amount owed (30 percent), the length of your credit history (15 percent), new loans (10 percent), and your credit mix (10 percent). The credit score is largely determined by your payment history (35%).
Since your credit history contains the most important information in determining your credit score, you should spend some time carefully reviewing this section for errors.
Your credit history includes the following items:
- Closed and current accounts from the last seven to ten years. Include individual, joint, and authorized user accounts. In addition to revolving credit, you’ll find installment loans, such as student loans, auto loans, and mortgages.
- Payment history. Here you can check whether or not your minimum payments have been made on time. If you have negative accounts, any missed payments will also be displayed. Late payments can be shown as 30, 60, 90, 120 or 150 days past due.
- Current balances. Include the balance of the account at the time the issuer reported it to the bureau and the highest balance ever accrued.
- Names of creditors and lenders. You will receive a listing of all accounts with the name of the creditor or lender and the date the account was opened. A credit report does not contain specific information about individual purchases.
- Limits on credit or loan amounts. The current credit limit of a revolving account and the initial credit amount of a fixed rate account.
- Date the account was opened and/or closed.
- Status of the account. Open, closed, paid, funded, transferred, or closed accounts can be displayed. Closed accounts are accounts that are between 90 and 180 days past due and considered delinquent.
Even if you close an account or pay off a loan, the accounts will continue to appear on your credit report for a while. Your credit report may contain seven years of negative information such as late payments, past due loans, and charged-off accounts. After ten years, a credit report will no longer contain information about closed accounts in good standing.
Review all account details, especially payment history, carefully!
Make sure your credit history is accurate by checking account number, account name, balance amount, payment history, due date, and status of payments.
Make sure the account’s current credit limit or original credit amount is correct. Your credit score may deteriorate if your stated credit limit is lower than what you actually have.
Other potential errors in this section include:
- Closed accounts reported as open
- Open accounts falsely reported as delinquent.
- Delinquent accounts that are erroneously reported as delinquent.
- Payments were reported as late even though they were made on time.
- Incorrect dates: Date account was opened/closed, last payment was made, or first past due payment was made
- Accounts are listed multiple times under the name of different creditors (this can occur with past due accounts or accounts that have been sent to collections).
- If you are an authorized user but are listed as the owner of an account
Make sure all accounts listed are yours. If you do not know the issuer, find an account you did not open, find an incorrect balance, or find some other problem, you must dispute the error. It could be that the information on your credit report is outdated, but inaccurate account information can also be a sign of identity fraud.
4. Public records
In your report, you will find public records of debts. You may find records of bankruptcies, foreclosures, and repossessions. Public records remain on your report for seven years with one exception: a Chapter 7 bankruptcy remains on your report for ten years.
All of these records show a pattern of serious delinquency and may affect your credit score. For example, this section does not include arrests, court cases, divorces, or non-criminal violations such as traffic tickets.
Be aware that your financial prospects can be seriously affected by public records!
If your credit report contains a public record, you may need to explain to lenders why a negative record is included in your report.
A credit report must include your name, address, Social Security number or date of birth, and an annual visit to a courthouse. Make sure the public record pertains to you with the correct name, date of birth, address, and other personal information.
Your credit report should not contain property tax liens, income tax liens, federal or state tax liens, or civil judgments. You must dispute an error on your credit report if you find a tax lien.
5. Credit Inquiries
An inquiry is a record on your credit report that shows who accessed your information and when. The following types of inquiries exist:
- Checking your own credit score is considered a soft inquiry. The same thing happens when your current creditors check your account or when other companies want to send you pre-approved offers.
- A hard inquiry is more serious. When you apply for a new credit card, a credit card limit increase, a loan, or a mortgage, lenders check your credit score. Hard Inquiries can also occur when a collection agency tries to contact you.
Unlike soft inquiries, hard inquiries usually lower your credit score by a few points. A hard inquiry can be an indication to lenders that you are at increased risk, as they wonder why you want or need further credit.
A hard inquiry can lower your credit score or be a sign of identity theft!
If you notice a request that you do not know, it could indicate identity theft. It’s possible that an unknown credit inquiry on your report is the result of multiple potential lenders pulling your report after you apply for a loan or mortgage. Nevertheless, issuers consider similar inquiries that occur within a short period of time (usually less than 45 days) as one inquiry.
Inquiries should be deleted after two years if they are older than two years. Persistent inquiries may be removed by filing an appeal.
What If You Find Errors in Your Credit Report?
You can dispute inaccurate or outdated information in one of your credit reports to update it. If you make a mistake, it is important to correct it because incorrect information can negatively impact your credit score, as well as any application process that involves your credit report.
The world of credit reports has the “big three” credit-reporting bureaus: Equifax, Experian, and TransUnion. But specialty credit-reporting bureaus, which are covered by the FCRA and the FACT Act, also exist.
In fact, to allow for the large number and to allow for even more to come under the law, the Federal Trade Commission doesn’t specifically name them as it does the big three — the list would be too long and would change frequently. Specialized credit bureaus report data about you in areas such as gambling, checking, medical, and insurance experience.
Online disputes are accepted by Experian, TransUnion, and Equifax. It is easy to fill out your information online or dispute by mail or phone.
How Do Lenders Use the Credit Report?
Lenders use the information in your credit report to evaluate your debt capacity, your collateral, your capital, and your expected ability to repay the debt. Their evaluation of your payment probability is partly based on the stability of your employment and residency history.
To evaluate your debt capacity, lenders look at your open credit limits, current debts, and other payments to get a sense of how much debt you can afford based on your income and credit burden. They’re more likely to extend you credit that’s secured by collateral.
For example, the car you purchase is the collateral for your car loan. If you default on the loan, the car can be repossessed, so there’s less risk to the lender. Down payments also work in your favor, as the lender can see that you have planned for and invested in the purchase.
Increasingly, lenders have been making their lending decisions by focusing on your credit score, which is a number indicating how likely you are to make payments on time and repay loans. The score is computer-generated and largely based on your use of credit in the past—how long you’ve used credit, how much you use it, and how responsibly you’ve used it.
All in all, they may look at your income, education, job stability, how often you’ve moved, whether you own your own home, how often you take out cash advances, how close you are to your credit limits, how many credit cards you have, and past payment history. A computer compares this information to patterns from thousands of other consumers and predicts your level of credit risk.
Many banks and credit card issuers offer free credit score tracking as part of their service; you can find the score on your monthly statement or by going online and logging in to your account. Many websites also offer free credit score tracking, but you need to watch out for scam artists who are just trying to collect your personal information.
Reliable sites for this include Credit Karma, Credit Sesame, and NerdWallet. Many money management apps (like Mint) also keep track of your credit score. While there are several different credit scoring models out there, the FICO (Fair Isaac Corporation) credit score is most often used by lenders and others. All three major credit bureaus offer this option with your credit report or as a separate option.
Keeping track of your credit score can motivate you to improve it. Some of the best ways to improve your credit include paying every bill on time every month, keeping credit card balances below 30 percent of your available credit, avoiding the closure of unused credit cards and the opening of new credit cards, and checking your credit report for any inaccuracies.
Learn more about how to read your credit scores.
Final Words
Reading your credit report will tell you how to improve your credit score and maintain a healthy credit score. To prevent identity theft and fraud, review your credit reports regularly. You can make more informed decisions about your spending and behavior as a borrower if you know why it’s important to check your credit report and how to read a credit report.