Master Your Financial Destiny: Understanding Credit Reports
A credit report is a detailed breakdown of your credit history prepared by a credit bureau. Credit bureaus collect financial information about you and compile their reports based on that information. Lenders use the reports, often along with other data, to determine your creditworthiness. Insurance companies, employers, and landlords may check your credit reports, as well.
Key Points to Grasp
- A credit report is a summary of your credit history, compiled by a credit bureau.
- Credit reports include details on your credit accounts, public records such as bankruptcies, and a list of entities that have asked to see your credit report.
- The three major credit bureaus—Equifax, Experian, and TransUnion—are each required to provide you with a free report at least once a year.
How Credit Reports Operate
In the United States, the three major credit reporting bureaus are Equifax, Experian, and TransUnion. Each of these companies collects information about your credit history to create a unique credit report on you. Although most of their information is similar, there are often small differences among the three reports depending on which of your creditors, such as mortgage lenders and credit card companies, provide information to that particular bureau. Some creditors may supply information to one or two bureaus but not all three, and some may not supply any information on you at all.
Credit reports focus primarily on your use of credit. They do not include information on other types of bills, nor do they show your income, investments, or other assets.
Pro Insight
Make sure to review your credit report before you need it. A client was applying for a home mortgage, and when the bank pulled their credit report, there was over $20,000 of credit card debt on the report, though the client didn’t have any credit cards. It turned out the client had the same name as their father, so the credit report pulled their information along with the father’s credit card balance by mistake.
Always check for errors before you plan to apply for credit. Fixing such errors can save time and prevent lenders from hesitating or delaying your credit decision.
What Information Is in My Credit Report?
Credit reports typically divide information into four sections:
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Personal Information: Includes your name, address, date of birth, spouse or co-applicant, and phone numbers.
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Accounts: Detailed information on your past and present credit accounts, including revolving credit (credit cards and lines of credit) and installment credit (auto loans, personal loans, and mortgages). It indicates when you opened the account, its current status, and whether you kept up with your payments.
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Public Records: Information regarding bankruptcies, legal judgments, or tax liens. It does not include non-financial matters, such as arrests.
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Credit Inquiries: Lists all entities that have recently asked to see your credit report. These could be hard inquiries (when you apply for credit) or soft inquiries (marketing purposes). Hard inquiries might briefly impact your credit score.
Credit Reports and Credit Scores
Credit scores are three-digit numbers, ranging from 300 to 850, that serve as a shorthand for your creditworthiness. Information from your credit reports computes your credit scores, but scores themselves are not part of the report and must be obtained separately.
Credit scores are developed by FICO or a competitor such as VantageScore. They assign different weights to the information in your credit report. Typical FICO score breakdown:
Payment history: 35%. Whether you pay your credit bills on time.
Amounts owed: 30%. Factors such as your credit utilization ratio, which compares outstanding debt to total available credit.
Length of credit history: 15%. Older accounts count more.
**Credit mix: 10%.**Using a variety of credit types responsibly.
**New credit: 10%.**Recent credit leads can be a red flag.
While there’s a typical breakdown, scoring models may vary, emphasizing certain factors, depending on the type of lender or credit involved. Consumers, therefore, might have multiple credit scores.
Duration of Information on Your Credit Report
Information typically remains on your credit report for at least seven years, after which it falls off. An exception is Chapter 7 bankruptcy, which can remain up to 10 years.
Who Can See Your Credit Report?
Under the Fair Credit Reporting Act, businesses and other parties need a legally permissible reason to request your credit report. It includes lenders, insurance companies, employers, landlords, and government agencies. With employers, you must give written permission.
Obtaining Your Credit Report
Legally, you’re entitled to a free copy of your credit report from each of the three major bureaus at least once a year. The official website for this purpose is AnnualCreditReport.com. You are also entitled to a free credit report if you’ve recently been denied credit, insurance, or employment based on your report or if you’ve been a victim of identity theft.
Achieve Clarity for Financial Moves
Your credit reports contain information that lenders, insurance companies, and others use to judge your financial reliability. Regularly checking your reports ensures accurate information. If you spot any errors, you have the right to dispute them, and the credit bureau must investigate the matter and respond.
Related Terms: credit score, credit history, credit bureaus, financial information, credit utilization rate.
References
- Federal Trade Commission. “A Summary of Your Rights Under the Fair Credit Reporting Act”, Page 1.
- Experian. “Understanding Your Experian Credit Report”.
- myFICO. “What’s in My FICO Scores?”
- TransUnion. “How Long Does Bankruptcy Stay on Your Credit Report?”
- Consumer Financial Protection Bureau. “Who May Request My Credit Report?”
