The Basics of a Credit Report

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Credit Cards and Credit Reports

Understanding your credit report

Understanding what’s in your credit report can help you improve your credit rating, lower the costs of borrowing, and fix any mistakes on your report. This post will help you understand the very basics of credit reports: what’s in your credit report, who can look at it, how often you should look at it, and how it’s created. Once you know these basics, you’ll be ready to start improving your credit score and repairing any problems you have.

Understanding Your Credit Report: What Is It and What’s In It?

A credit report is a file that credit reporting agencies (like Equifax, Experian, and TransUnion) create, maintain, and distribute containing information on your personal credit worthiness and repayment history. Credit reports contain five types of information:

1. Identification

Your true credit report will have your name, current and past addresses, your spouse’s name (if you’re married), your date of birth, your Social Security Number, your telephone number, your employer (and previous employers), and your mother’s maiden name.

2. Credit Inquiries

Every time a lender or other credit provider runs a credit report on you, a record is made showing who ran the report and when they asked for it. In most states, these inquiries remain on your report for one or two years. Lenders consider this relevant information because it shows your recent credit activity and how desperately you might be trying to get credit, which can be a sign that you are a higher-risk borrower.

There are two types of inquiries: hard and soft. A hard credit inquiry is one where you personally and voluntarily applied for credit and authorized a lender to pull your credit report. These are the only inquiries that affect your credit score.

Soft credit inquiries are the ones made by businesses that want to offer you goods and services. “Pre-approved” offers are often the result of soft inquiries. Because you didn’t request credit from these businesses, these inquiries won’t hurt your credit score.

3. Information in Public Records

Publicly available records like courthouse records, bankruptcies, judgments, lawsuits, and sometimes criminal records are included on your credit report. Credit reporting agencies will also include any records of collection accounts (when the original creditor hands your account over to a debt collector).

4. Understanding Credit History

This section includes a list of every creditor you’ve had an account with along with your repayment history. Each entry will also include information on when the account was opened, the credit limit, your current balance, the monthly payment, and your payment frequency for the last 12 to 24 months. These listings may also include consumer disputes, whether the credit is individual or joint liability, the cosigner or guarantor, secured accounts, and any charge-offs (when the creditor writes off your account as a loss).

It’s very important to make sure there are absolutely no errors in this section because the information here holds a very high weight in figuring your credit score and worthiness.

5. Consumer Statements

Finally, your credit report can include a statement of less than 100 words that allows you to more fully explain an account on your credit report. Some lenders look at this and some don’t, but it doesn’t hurt to use this option to elaborate on any extenuating circumstances in your credit situation – especially where you’ve had problems working with a particular creditor.

Who Can Legally Look at My Credit Report?

Any business can legally do a soft credit inquiry on you. As I mentioned before, these inquiries don’t affect your credit score. You can opt out of pre-screened (or pre-approved) offers from credit and insurance companies through optoutprescreen.com. That’ll stop those types of offers and soft credit inquiries, but employers, landlords, and businesses wanting to verify your personal information will still be able to do a soft credit inquiry on you.

However, only businesses that you have authorized can do a hard credit inquiry on you. This authorization is standard when you’re filling out a credit card or loan application and many other situations where credit is being extended. This probably happens more than you think, since banks often do a hard credit inquiry when you open a bank account and cell phone companies often do the same when you sign up.

How Often Should I Look at My Own Credit Report?

If you’ve got a credit card, installment loans, a vehicle lease, or any other form of credit you’re actively using, you should be reviewing your credit report at least every six to twelve months. I prefer to do a four month rotation between the big three credit reporting agencies (Equifax, Experian, and TransUnion) using annualcreditreport.com‘s free service. I pull my credit report and my wife’s credit report from one of these agencies every four months. That makes it easy to review the reports regularly.

Craig here – you can also get a general idea of your credit score by using a free service called Credit Sesame.

If you’re not really using credit, you can probably stick to just once a year or year and a half.

When Is a Credit Report Created?

Your credit report is created as soon as you apply for your first loan or credit card or when a business reports information on credit they’ve extended to you. Once your report has been created, it continues to get updated as more information becomes available.

Have Credit Problems? Want to Know How to Fix Your Credit Report?

Stay tuned for more information on do-it-yourself credit repair. I’ll show you how you can improve your credit score, make changes and corrections to errors on your credit report, and how to deal with problem accounts and unauthorized access.

(photo credit: Andres Rueda on Flickr)

Comments

    • says

      Thanks, I’m glad it was clear. Reviewing one credit report (from one reporting agency) every four months doesn’t take me much time – maybe 10 minutes to go to the site, provide my info, look it over, and save a copy. Doing all three just once a year would take a little longer (30 mins maybe?) in a single sitting. The reason I like it is because dealing with any problems doesn’t seem as big of a burden when I’m only focusing on one reporting agency at a time.

      In truth, it doesn’t matter that much – it’s personal preference for me. It just keeps me reviewing things regularly and in short bursts and I like that.

  1. Robert L. Stevenson says

    What this article failed to mention is the type of inquiries done by collection agencies and debt buyers. In theory, because a consumer does not authorize a collection agency or debt buyer to pull a credit report, these inquiries should be soft inquiries. In reality, these three credit bureaus “look the other way” and illegally permit the collection agencies and debt buyers to pull a hard inquiry which creates an adverse effect on one’s credit score. If a consumer was playing “hardball” with a collection agency to resolve the collection of a debt, the collection agency could do a hard pull every day for the next 10 years. This would totally destroy the consumer and his credit score.

    • says

      If somebody has an account in collections chances are that trade is reported to the bureaus. A seriously delinquent account that is past due now can have a very big impact on your score.

      Hard inquiries can lower scores, but the scores work differently when you have derogatory accounts. The focus should be on cleaning up the account in collections. The impact of inquiries made by a collection agency is negligible in comparison.

  2. says

    I have had this happen to me what you said about hard pulls and such. Now that I have a degree in paralegal I am fixing my own credit since I know how. The best part is I know what the LAW states and I win every time!

  3. says

    Lenders are looking for signs that you may miss a payment if they give you a loan. The way they do this is by assessing your past behavior, which is proven to predict future behavior. In other words, if you’ve missed lots of credit card payments in the recent past, lenders will be less likely to lend to you in the near future, or they will give you a higher interest rate on your loan. Employers and landlords may be looking for negative past behavior that may indicate future risky behavior as well.

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