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:
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)