Understanding Credit Report

It is essential to access your credit report to know if you have a good credit score or a bad credit score. People who do not take the time to review their report frequently often get to know that they have bad credit when they apply for a loan.

Your credit report is a mirror of your financial habits. Therefore, it is essential that you review it at least once every year. When you review your credit report frequently, many credit report errors may come to light.

It is important to remember that more than 70% of credit reports have some kind of errors in them, so it is your duty, as a consumer, to keep an eye on these errors and get them corrected as soon as possible, as it can lower your credit scores even when you have been responsible with your finances.

This is the reason why it is advised that you check your credit report on a regular basis, as checking it only once in a year would make it difficult for you to track any errors in the financial transactions that you made throughout the year.

So, you must inform the credit bureaus about the inaccuracies in your report as soon as possible and get your credit report updated accurately, without any delay. Thus, you get an improved credit score, the one you actually deserve.

To review and understand your credit report better, it would help you to know how you can obtain your credit report, how it is prepared, what does your credit score mean and what your credit report contains.

Who Prepares Your Credit Report?

There are three major Credit Reporting Agencies, Experian, Equifax and Trans Union, in America that are entrusted with the work of preparing your credit report. When you apply for loans, credit, credit cards, use your credit cards to make purchases, are involved in a lawsuit, are arrested, or default payments, the concerned companies report them to the credit reporting agencies. These agencies compile all the data that it receives about individuals and compiles them into one single report. Banks and lenders rely on the reports prepared by these agencies to check your credit history.

Services Provided by the Three Major Credit Bureaus

Experian, Equifax and Trans Union, are the three credit bureaus that are mandated under the federal law to provide you with a truly free credit report once in a year. However, if you wish to check your report more often, or may be every month, you can simply subscribe to them online for a minimal monthly fee.

As these credit bureaus are private companies and are in the profit-making business, they also provide you additional services, besides providing you with your free credit report.

Listed below are some of these additional services:

Free Credit Scores - They provide you an updated credit report with free credit scores, which is not available in your yearly report that you are entitled to get free of cost from the Government.
Credit Guidance - They can help you improve your credit scores and your bad credit history, by giving you apt guidance and the much needed information most consumers are unaware about, which may be unknowingly contributing to your depleting credit scores.
Identity Theft Protection - They also provide services to prevent identity theft. Many companies also provide you great Id Theft Insurance, in case they fail to live up to their commitment of protecting your identity. Some of them also help you recover your identity and provide further guidance during the recovery phase. (Image 5)
Credit Monitoring - Your credit is monitored on a daily basis. You are alerted through phone, and email, the moment any suspicious activity is traced in your account.

All these services are available with all the three agencies. Contrary to the popular opinion that only ID Theft victims require these services, it must be remembered that taking precautions to prevent identity theft is a must for all.

How to Access Your Yearly Free Credit Report?

As has been mentioned above, it is mandatory for the three major Credit Reporting Agencies to provide every U.S. citizen with a free credit report once in a year on request of the consumer. There are three ways by which you can obtain your free credit report.

1. Your can write to:
Annual Credit Report Request Service
P.O.Box 105283,
Atlanta, GA 30348-5283
2. You can place your order for the free credit report by telephone at
877-322-8228
3. You can visit the central website of the three credit bureaus at AnnualCreditReport.com, and place your order online. You will be asked to provide your Social Security Number and when you enter it, you will get the free credit report

Why is Spacing out 3 Government Credit Reports throughout the Year Not a Good Idea?

Rather than obtaining all the three credit reports at the same time, some people space them out throughout the year so as to be able to monitor the credit report periodically. So, they check the report from one credit bureau at a time. But this is not a good idea, as checking credit report from one bureau at a time is like checking 1/3rd of your medical health report at a time. It would make no sense, as it won’t give you the complete picture of your credit.

There are times, when lenders or financial institutions report only to one of these three bureaus for the payments made by you, and as these three bureaus work individually, only one of your three credit reports would mention that you have indeed paid off your debt, or bill payment. The other two reports would lower your credit score, mentioning a late or missed payment by you. Hence, it is important for you to compare all three credit reports at once, to track such reporting errors.

Exceptional Circumstances to Request Free Credit Report from the Credit Bureaus

Apart from your free annual credit report, you can also obtain your credit report for free from the three credit bureaus under some special circumstances, as given below:

If you have been denied credit or loan, you can ask to view the credit report within 60 days to check the basis for the denial.
If you have been denied employment or are unemployed, you can obtain a free credit report within 60 days on giving a written certificate.
If you are on welfare, you can get a free credit report on production of a written certificate.

It must be remembered here that you can order only “your” credit report. You cannot place the order on behalf of your spouse. For purposes of credit, you and your spouse are considered as different entities. But you both have the right to get negative points removed from each other’s reports, especially if your spouse’s bad credit appears on your report.

What Does Your Credit Report Contain?

Your credit report is divided into four major sections. While all the mentioned sections are common with the three credit bureaus, the information present in them may differ.

Given below are the sections that together constitute your credit report:

Personal Information – This section contains all your personal details like your name, present and past addresses and employment history. Details, like lawsuits and arrests are also included. If you have had alerts placed on your credit report or have made any statement, the same appears in this section. If you are repaying a loan and have moved without informing the creditor, this information will also be indicated here.

Accounts – This section contains detailed information, which lists all financial transaction of the consumer in great detail. Details regarding, mortgage payment, installment payment, revolving accounts, open and closed accounts, late payments, unpaid bills, and positive and negative accounts are listed.

In the “Past Due” column, it is mentioned how late the payment is, i.e, if it is late by 30 days, 60 days or 90 days or if it is current. The accounts also contain details of the total debt, credit limits, balance, installments paid and other details.

Experian and TransUnion have a smaller report. Equifax usually has a long report with details of the different types of accounts, and names this section as “Credit Summary”. All the three reports contain information, which forms a part of your Public record. These also contain any bankruptcies, delinquencies and all judgments, against you.

Inquiries – When you apply for a loan or credit card or even employment, you credit report is pulled out by the lenders and employers. These requests of information about you are listed in the credit report as Inquiries. Your own requests for the credit report are also placed on record. Some of these inquiries affect your credit rating. The inquiries are segregated into hard and soft inquiries, meaning ones that affect your credit score and the ones that do not, respectively. It is the hard enquiries that are responsible for dipping your credit score.

Collections – Accounts that are handed over to the collection agencies appear in this section.

Apart from the above mentioned sections, Equifax has an additional section called “Dispute information”, which gives detailed information about how to initiate a dispute and the procedure to be followed.

Credit Report Information under Section 605 (FCRA - Sec.1681 c)

Information to be excluded from the report:

Cases under Bankruptcies Act that has appeared in the report for more than 10 years;
Civil lawsuits and arrests that are mentioned in the report for more than seven years or until the statute of limitations expires, whichever is later;
Collection accounts, which is present the report for more than seven years;
Conviction for crimes, which is present in the report for more than seven years.

Information to be included in the report:

Credit transaction or insurance underwriting, which involves an amount of $150,000 or more; or
Employment of a person at an annual salary equal to or more than $75,000.

Credit Report and Spouse

Under the law, you cannot access anybody’s credit report, even your spouse, except your own. However, spouses have the right to merge reports as regards positive and negative information.

If your spouse has positive credit, you can get it added to your credit report to improve your credit rating and similarly, if your spouse has negative report, which appears in your report too, you can get it removed to avoid your credit report from being harmed and vice versa.

This is beneficial as rather than both partners having bad credit and being turned down for loans, the spouse having a good credit can apply for credit and loans, et al.

What Exactly is a Credit Score?

Credit Score is a three-digit number that acts like a grade to your financial report card, i.e your credit report. It is used to gauge your financial health at a glance. It ranges from 300 to 850 and is calculated by taking into account all the information mentioned in the credit report.

The kinds of loans, the balances, credit limits, length of credit history, number and types of accounts, length of duration of accounts, kinds of inquiries, numbers of inquiries, number of collection accounts, unpaid bills, debts et al, are all used to calculate the credit score.

Your credit score determines yours loans, credits and your employment. If your credit score is good, then you will be offered loans at a lower rate of interest and if your score is not so good or bad, the interest rates on the loans will be high.

Credit scores are not a part of your free annual credit report. You will have to order them separately. You get them as a part of the credit report, when you subscribe for your credit report for a minimal charge, from any of the credit bureaus.

What Does Your Credit Scores Mean?

Your credit score, popularly known as, FICO (Fair Issac and Company) score, ranges between 300 and 850 points.

Your score is indicative of your financial status. Given below are the FICO score ranges, which will let you judge how good your credit score is.

720 to 850 – Excellent
700 to 719 – Very good
676 to 699 – Average
620 to 675 – Sub Prime Score
560 to 619 – Very risky score
300 to 559 – Bad

How to Maintain a Good Credit Report?

There are a few things that you can do to maintain a good credit report.

Do not have too many changes in residential address
A steady employment reflects upon the credit report positively
Regular repayments of loan is good
Do not default on payments
Foreclosures and bankruptcies are not good for your credit report
Keep the balances low
Maintain a credit score of 680 and above
Do not take advantage of special schemes and open too many accounts only to close them after utilizing the schemes and paying off the balance. While they may be advantageous to you, they lower the credit score
Keep the number of accounts on your credit report low
Debt consolidation is a good way to pay off large debts on a monthly basis While this is a good long-term decision, with good visible results after the complete loan has been repaid, it will instantaneously lower the credit score

Call the Credit Reporting Agencies for Clarification

If there are certain points or information in your credit report that you cannot understand or require clarification on, you can call any of the three agencies. The customer care services of the credit agencies are always there to help you with your queries and improve your understanding of credit reports.