If you plan to participate meaningfully in the U.S. economy, it is vital to examine your credit report every year, and understand everything in it.
A credit report is a detailed summary of your bill paying history and the current status of your credit accounts. It documents who you owed, how much you owed, how much you paid, and, most importantly, how efficiently you paid those bills.
In other words, were you: a) on-time with payments, b) late with payments, or c) did you not pay at all?
Potential lenders use the information on a credit report to evaluate their risk of extending you credit. Those potential lenders include just about everybody you would do business with, including banks and financial institutions, credit card companies, automobile dealers, insurance companies, department stores, utilities, cable, cellular providers, landlords, and possibly even an employer.
They may weigh the various aspects of your credit history differently, but each one is hoping to answer the same question: if I give this person a loan or extend them credit, are they trustworthy enough to pay me back?
What’s in a Credit Report?
The short answer to that question is: A lot!
The typical credit report will include personal identifying information: a list of credit accounts (including credit limit), type of account (credit card, mortgage, auto loan, etc.), and your payment history on those accounts.
The three major credit bureaus, Equifax, Experian and TransUnion, compile data from sources that extend you credit. Bits and pieces of your credit history may vary slightly among the three companies because not all businesses supply information to all three agencies. However, the broad picture of your credit history should be relatively consistent.
Each credit report has four basic categories: identity, existing credit information, public records and recent inquiries.
Here’s how they break down:
- Identity: You are identified by name, address, date of birth, social security number and employment.
- Existing credit Information: This includes detailed information about any credit accounts (credit cards, mortgages and loans) you have. The report states when each account was created, your credit limit or loan total, co-signer information and a two-year history of payments. All or part of your account numbers is attached. Any negative information in this section typically remains on the credit report for seven years.
- Public Records: This information is generated from transactions recorded by local, state and federal governments. It can include property purchases, liens, bankruptcies, foreclosures, court judgments and divorces. A bankruptcy stays on your credit report for a decade, and criminal convictions may remain on it indefinitely.
- Credit Inquiries: This is a list of companies and individuals who requested a copy of the report in the past two years.
Who Looks at Credit Reports
The Fair Credit Reporting Act (or FCRA) and some state laws attempt to restrict who can access your credit report and how that information can be used, but generally speaking, any business you seek credit from or anyone who has legitimate business need, can request to see your report.
Access is limited to:
- Lenders and potential lenders
- Utility companies that provide or may provide service
- Insurance companies that supplied or may supply insurance
- Government agencies reviewing eligibility for government benefits
- Employers or prospective employers, but only with permission from the employee
- Others with a legitimate need, such as banks providing checking accounts or potential landlords
The most obvious businesses would be banks, credit unions, mortgage companies, auto dealers, and credit card companies from whom you are seeking credit. Each one uses information from your credit report to determine how much credit to extend you and what interest rate to charge.
Insurance companies use credit reports to help them set their rates. Landlords, utility, cable and cell phone companies would use the information to determine if you would be a reliable customer.
Other businesses that might surprise you to know have access to your report include: collection agencies, judgment creditors, government agencies, and state or local child support enforcement agencies.
One thing worth noting: by law, you have the right to know who has inquired about or requested your credit report in the last six months. When you request a copy of your report, a list of all those businesses or individuals should be on your report.
How to Get a Credit Report
The Fair Credit Reporting Act requires Experian, Equifax and TransUnion to provide you a free copy of your credit report once, every 12 months.
There is a charge for credit scores, but the credit report is free.
To get a free credit report, go online to www.annualcreditreport.com or call 1-877-322-8228 and request it. This is the only website authorized to fill orders for free credit reports. Once there, each agency must supply you one credit report every 12 months. You could receive all three reports at once, or spread them out over 12 months — depending on the purpose you have.
If you want to examine the three together and compare all the information contained in each report to be sure it’s accurate (e.g. spelling of name, address, businesses you have credit accounts with, amount owed to each creditor, etc.), you should request all three at the same time.
Since the information on all three should essentially be the same, you may want to ask for one report every four months and verify each time that the information remains accurate.
If you already received a free report from each of the bureaus and want to check your credit report again, you can contact any of the three reporting agencies and order one for a small charge, usually under $10.
Be aware that there are several websites with very similar names and spellings that advertise “free credit reports” but it’s a ruse. The www.annualcreditreport.com site is the only one authorized to provide free reports. The others will send you a report only after you have paid a fee for other services. Be careful to visit the correct website and do not allow them to charge you anything for a report.
When to Request a Credit Report
The interest rate you receive from any lender is based on your credit score and the information contained in your credit report. If there are mistakes, it could affect the interest rate you receive and cost you hundreds or even thousands of dollars.
A recent government survey says that 20% of consumers found at least one error on their credit report. That’s one reason it’s so important to check your credit report regularly.
Another is to see if you are the victim of identity theft. The U.S. Department of Justice says that 17.6 million people were victims of identity theft in 2014. About 8.6 million people were victims of unauthorized use of their credit cards, 1.5 million saw unauthorized use of their bank accounts, and 1.1 million had unauthorized credit card or loan accounts opened with their identities.
Applying for a job is another reason to review your credit report. A study by the Society of Human Resource Management said that 47% of employers look at a candidate’s credit reports. If there is incorrect information there, it could impact your hiring.
Hard Pulls vs. Soft Pulls
When you apply for credit of any kind, you effectively authorize a business or individual to do what is called a “hard pull” or “hard inquiry” on your credit report. There likely will be a negative effect on your credit score from hard pulls, especially if several occur over a short period of time.
By contrast, some businesses do “soft pulls” on your credit report and there is no effect at all on your credit score. This usually occurs when a company is shopping for new customers and offering incentives like low-interest credit cards or loans. They want to know if you’re a good prospect for their offer so they’ll do a “soft pull” on your credit report and you probably won’t even know it happened.
Hard pulls are another issue. Hard pulls are viewed as an indication that you need financial help to complete whatever transaction you are making, thus it has a negative effect on your credit score. The effect usually is slight, maybe 5-to-7 points, but if your credit score is on the borderline, it may drop to the wrong side of that line after a hard pull and affect the interest rate you are charged.
This should not discourage you from shopping at several lenders for auto or home loans. Fair Isaac Corporation (or FICO) calls this “rate shopping,” and allows a 45-day window where the numerous hard inquiries are treated as just one.
Credit Reporting Companies
Each credit reporting bureau reports whatever data is sent to them. Some companies do not report to every agency, which may create inconsistencies among your three credit reports. Minor inconsistencies should not have much effect on your credit report or credit score.
In general, the same credit history will be shown on all three reports. All your credit reports have the same basic sections for your identifying information, public record history, existing credit information and payment history, and recent requests for your credit report.
The three major bureaus also help determine your credit score by the information they feed to FICO, which produces the FICO score that is the benchmark credit score for nearly all businesses.
Despite consistent credit reports, you may still have three different credit scores. Each bureau uses a different formula for gathering the data it supplies to FICO. Industry analysts say the algorithms involved are so complicated that it’s impossible to determine what specific pieces of information created the different score.
The same industry experts suggest that people who want to improve their credit score should focus their attention instead on the five risk factors that determine a credit score: payment history, amount owed, length of credit history, credit mix, and new credit.
How to Fix an Inaccurate Credit Report
While credit bureaus make every effort to report accurate and up-to-date information, your reports may have misinformation and are subject to human error. If you notice wrong information in any one of your credit reports, you can start a dispute with the credit bureau that made the error.
Recent court rulings prompted all three reporting bureaus to promise they would expand their investigation departments and act more promptly and professionally when an error is in dispute.
When you start a dispute, contact the company you believe supplied the inaccurate data and the credit bureau that reported the error. For example, if you notice that your Equifax report has an error about your credit card payments, contact both Equifax and the credit card company.
To contact the credit bureau, follow the instructions listed on your credit report, or visit the bureau’s dispute page.
Start a dispute with:
The best way to contact the business that reported an error is to write a letter and send it to the address listed on your last bill or statement. When contacting the business and the reporting bureau, you’ll need to give identifying information like your name, address, and account number.
Identify each item you dispute, explain your position, and request that the items be deleted or corrected. Provide copies of documents that support your claim, such as credit card statements or court documents, and include a copy of your credit report with the disputed items circled or highlighted.
The credit reporting agency must contact your creditor within 30 to 45 days after you file a dispute. If your creditor cannot find a record of the information in question, the credit bureau will delete it from your report.
If the credit bureau finds that the information is incomplete or inaccurate, it will delete wrong information and add missing information. In this case, the credit bureau typically mails you an updated copy of your report.
Once your report is updated, the agency should send the new information to the other two national credit reporting agencies. However, it is up to you to confirm that all three of your credit reports are accurate.
At your request, the agency can also send a notice of correction to any creditor that viewed your report in the last six months.
Credit Report vs. Credit Score
Your credit report is a brief history of your debts and credit accounts, as well as relevant data like bankruptcy information.
Your credit score, on the other hand, is a number ranging from 300 to 850. It provides no context or background information but it quickly summarizes your credit standing. A higher score reflects a better credit history, showing lenders you are a good investment and are most likely make payments on time.
While you can obtain a free annual copy of your credit report, you typically have to pay for your credit score.
History of the Credit Report
Credit reporting is a century-old practice that started unofficially in the late 1800s and early 1900s. At first, people around the country conducted informal surveys with retailers and bankers, taking notes about the reliability of customers.
Most of these early credit reporters were specific to certain industries, like banking or retail, and the files they created were subjective. When a customer sought a new line of credit, the retailer or banker called the local credit reporter to review notes on the customer. From this, the retailer determined whether or not to grant the customer a line of credit.
Over several decades, credit reporting became a more formal process. Rather than including subjective statements about customers, reports included facts about payment history and employment details. They also encompassed wider geographic areas. Credit reporting was no longer specific to one city but spanned entire regions.
In the 1970s, two things changed the makeup of credit reports: computers and new legislation.
Congress voted in the Fair Credit Reporting Act (FCRA) effective in 1970. It was the first set of regulations for credit reporting. The FCRA, which is in place today with only a few minor changes, dictates what the credit report includes and who can receive a copy.
Around the same time the FCRA was being implemented, computers were introduced into the American business world. They made it possible for your reports to include information from creditors across the country. They also made it possible for creditors around the country to get your reports.
Since then, credit reports have adjusted with the times, but their contents remain constant, as do their relevant regulations.
At its core, a credit report is still a personal document that tells potential creditors how responsible you are with money and with credit.