How to Understand Your Credit Report
Looking at your credit report will usually be a part of credit counseling and getting back on the right track financially. A credit report reflects your consumer credit history. It used to just be used to determine creditworthiness, but now it is also being used by insurance companies to determine premiums, and even prospective employers to determine if you are the right candidate for the job.
Since credit reports are now so important, you should get a copy of your credit report and take the time to learn how to read it. And if you find any discrepancies, you should challenge them right away.
Getting a Copy of Your Credit Report
You actually have three credit reports, one from each of the three nationwide credit reporting agencies in the US. They are Experian, TransUnion and Equifax. Order them online from AnnualCreditReport.com, which is the only authorized website for free credit reports. Provide your name, address, social security number, and date of birth to verify your identity.
How Is the Report Compiled?
Credit reporting bureaus are sent information by creditors about how their customers pay their bills. The bureau assembles this information, along with public record information, into a file for each consumer. There are thousands of bureaus reporting this information to the big three agencies, which hold data for more than 170 million Americans.
How Is Creditworthiness Determined?
If you apply for a loan or a new credit card, the new creditor will request your report. Based on their criteria, they will determine whether or not they wish to accept you as a customer.
In some cases, the decision has little to do with the credit report itself, but instead is based on things like income, length of residence at a location, or employment and length of time working there.
Types of Reports
There are two types of credit reports. They are:
- Consumer version – This lists all activities and inquiries including promotional inquiries, account numbers and account management inquiries.
- Business version – The business version is an abbreviated version of the consumer version. It just shows your basic credit category data.
The Four Categories
There are four categories of information in each credit report:
- Personal information
- Credit history
- Public records
- Inquiries
- Personal information
Your name, address, social security number, date of birth, addresses, employers, and so on.
- Credit history
This is usually a list of all accounts for the past ten years, and activity on those accounts. Accounts include credit cards, bank loans and so forth. Details include account numbers, credit limits, current balances, when accounts were opened and/or closed, late payments, and so on.
- Public records
Public records include:
- Tax liens
- Bankruptcies
- Court judgments (including child support judgments)
- Inquiries
A credit report’s inquiries section includes a listing of creditors, or authorized users, who have requested a copy of a consumer’s credit report. There are three types of inquiries:
- Normal inquiries – Creditors view your report to determine if you are a good candidate for lending. These are counted as official inquiries.
- Promotional inquiries – Companies ask for a list of people who might be a good fit for a 0% APR offer, for example. This is not an official inquiry.
- Account management inquiries – Creditors have permission to review the credit reports of their account holders from time to time. These are not official inquiries, so will not affect your credit score.
Annual Check-Up
Get your free reports and set aside some time to check them to ensure they are accurate. Report anything that looks wrong. Investigations are usually concluded within 30 days of the date that notification was received.
If the data is wrong, the creditor in question must make the correction and notify the other major credit reporting agencies of the error.
If the disputed information cannot be verified within 30 days, the disputed item is deleted, or updated. If the disputed information is verified later, it will be added back or updated.
