The Center For Debt Management
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The ABCs of Understanding
Credit Reports and Credit Scores

If you're like most consumers, chances are you have many questions about what information goes into your credit report and who gets to see it. In this article we provide an overview that we hope will address many of your questions and concerns.

What is a Credit Report?

A credit report is a summary of your financial reliability—for the most part, your history of paying debts and other bills. It is prepared by credit bureaus (also known as credit reporting agencies) primarily for use by lenders, employers and others who, under the federal Fair Credit Reporting Act (FCRA), have a legitimate need for the information, such as when you apply for a loan, insurance policy, apartment or job. The wealth of information gathered by credit bureaus, coupled with the speed of today's computer systems, explains why consumers can quickly get loans and other services, including approvals of certain credit applications in minutes.

What is in my Credit Report?

In general, your credit report has four components:

  • Identifying information, such as your name, Social Security number, current and previous addresses, telephone number, birth date, and employer. This information helps ensure that your credit report is accurate and doesn't mistakenly include details about another person (perhaps someone with the same name).

  • Public record information, generally gathered from local courthouses, including bankruptcy records, foreclosures, tax liens, court-ordered payments, and late child-support payments. This information is used to determine if you have previous defaults or legal judgments against you. For example, a mortgage lender will want to know if you've had a past foreclosure before granting a home loan. Derogatory information can generally remain on your credit report for up to seven years, except for bankruptcy information, which may be reported for 10 years.

  • Other credit history information, such as a list of your credit cards and loans, and whether payments were on time. Here, too, negative information about your credit relationships, such as late payments or defaults, will remain on your report for up to seven years, and bankruptcy information may appear on your report for 10 years.

  • "Inquiries," a section of your report that lists the creditors, insurance companies or other parties that have requested your credit report, usually when considering an application you submitted. Inquiries typically can remain on your credit report for two years.

What is NOT in My Credit Report?

Your credit report typically does not contain information about your checking and savings account balances, brokerage accounts, medical history, race, sex, religion, national origin, or your driving record.

How do credit bureaus get their information?

According to David Lafleur, a Policy Analyst at the FDIC, "Lenders voluntarily supply the information to credit bureaus on an ongoing basis; no federal laws require companies to submit the data." Why? Because having access to current and reliable information about you helps lenders make informed decisions and offer you financial products and services very quickly. Lenders, landlords and other users of credit reports also may want to know about events such as lawsuits and bankruptcies, so credit bureaus obtain this information from courthouses and public records.

Can Anyone Get My Credit Report?

No. The Fair Credit Reporting Act (FCRA) contains rules about who can get your credit report. Generally, a third party can access your credit report when considering an application you've made, such as for a loan, a job, insurance or an apartment. The law also allows entities to access your report as part of an ongoing business relationship. Suppose you already have an auto loan at the bank and you miss a payment or you move and don't provide a forwarding address. In this situation, the bank has the right to obtain a copy of your latest credit report.

But even if you are paying on a loan or credit card as agreed, the institution where you have the account can obtain your credit report as part of its regular maintenance of the account, and that includes looking for warning signs that you may have problems fulfilling your obligations in the future. "For example, it is not uncommon for credit card issuers to review their cardholders' credit reports on a regular basis and raise their APR (annual percentage rate) or lower their credit limit if there are signs of trouble, even if someone has been diligently paying the card issuer," says FDIC Consumer Affairs Specialist Howard Herman.

An exception to the ongoing relationship would be for employers who would first need to obtain the employee's permission each time before requesting a credit report.

How Can I get a Copy of My Credit Report?

You are entitled to receive a free copy of your credit report from a credit reporting agency if:

  • You have been denied credit, insurance or employment within the past sixty (60) days based on information in a credit report provided by such agency.

  • You certify in writing you are unemployed and intend to apply for employment during the sixty (60) day period beginning on the date on which you made such certification

  • You are a recipient of public welfare assistance.

  • You have reason to believe that your file at such credit reporting agency contains inaccurate information due to fraud.

In addition, by law, you are entitled to receive a free copy of your credit report once a year from each of the three major credit reporting agencies. Otherwise, a consumer reporting agency may impose a reasonable charge for providing you with a copy of your credit report.

Should you conclude that you are not eligible for a free credit, you may also get a free report by enrolling in a trial membership program. Upon enrollment you are provided a free credit report. By using this method, should you continue the trial membership you will have to pay a fee. However, you may cancel the membership, typically within 30 days, and keep the free credit report. To obtain a free credit report through a trial membership, we suggest that you go here.

Other than being eligible for a free credit report as mandated by state law, or through enrollment in some type of membership program, because of the costs associated with providing credit reports, we are not aware of any other method of obtaining your credit report for free. Those who wish to purchase their credit report quick and easy may do so online. Check out the variouus resources on this page and throughout our website. Remember, your credit report may vary from one company to another.

It is important to note that each credit reporting agency maintains their own files on consumers, and more often than not, each report will be different from the other two agencies. Businesses, employers and lenders may elect to check your credit report from any, or all, of the three agencies. Therefore, in order to conduct a thorough review of your credit files, you really need to review your report from all three agencies.

How Often Should I Get My Credit Report?

Many financial advisors suggest that you review your credit report for inaccuracies or omissions about once a year. It's especially important to review your credit report before making a major purchase, such as a home or a car, so you can correct an error before it slows down your credit approval or prevents you from getting the best possible loan terms.

What Kinds of Problems Could I Encounter?

While federal law requires lenders and other companies providing information to credit bureaus to give accurate information, mistakes do happen. So, when you look at your report:

  • Make sure it accurately reflects how you have paid your bills. If you always pay your credit card and other loans on time, but your credit report erroneously shows late payments, you'll want to correct that.

  • Verify that all the accounts listed are yours, especially if you have a common name or you share a name with a relative (such as John Doe, Jr.). You also want to be careful that an identity thief hasn't opened new accounts in your name to commit financial fraud.

  • Look for accounts you don't use and may have forgotten. You may be able to raise your credit score by closing unnecessary credit card accounts

How Do I Correct Wrong or Incomplete
Information in My Credit Report?

The FCRA gives you the right to dispute inaccuracies or omissions, and it requires credit bureaus to investigate your complaint (generally within 30 days), send you a prompt response and correct any errors. The law also requires the source of inaccurate information (such as a bank) to correct the record at the credit bureaus to which it initially provided the erroneous information.

Staff at the FTC, the government agency responsible for ensuring credit bureaus' compliance with federal laws, suggest the following: Immediately tell the credit bureau, in writing, about information you believe is incomplete or inaccurate. Include copies, NOT originals, of any documents that support your position. Clearly identify each item in your credit report that you dispute, state the facts and request a correction. Send your letter by certified mail and request a return receipt to document that your complaint arrived at the credit bureau. Keep copies of your dispute letter and enclosures. Also contact the company that provided the inaccurate or incomplete information to the credit bureau and request a correction of its records, too. If a credit bureau's investigation does not resolve your concerns, the FCRA allows you to submit a brief statement about the matter, in 100 words or less, that must be attached to your credit report and provided to anyone that accesses your report in the future. This enables you to tell potential lenders or anyone else who sees your credit report your side of the story.

Note: While there are hundreds of other credit bureaus around the country, there is little reason for consumers to review and correct these credit reports, according to the FDIC's Herman. "Those smaller credit bureaus typically get most or all of their information from the big three," he says. "If you obtain copies of your credit reports from Equifax, Experian and TransUnion on a regular basis and you make sure they are accurate, it's likely you'll be addressing problems at other credit bureaus, too."

What If I Have a Question or Complaint Involving a Credit Bureau?

First, try to resolve the matter with the credit bureau directly. If you're not satisfied, contact the FTC. The FTC does not resolve individual disputes, but it does provide useful information that may help consumers resolve their problems. Awareness of consumer complaints also enables the FTC to spot patterns of problems that may trigger an enforcement action.

What is a Credit Score and is it Important?

A credit score is a number calculated by a credit bureau, a lender or another company intended for use in making a decision on a loan application or other product or service. (For example, many lenders use a system developed by Fair Isaac and Company called the "FICO score.") Think of credit scoring as a point system based on your credit history, designed to help predict how likely you are to repay a loan or make payments on time. Everyone with a credit record also has a credit score. Different lenders and other companies may use different scoring systems, so your score (and the products or services you're offered as a result) may vary significantly from one source to another.

In general, the better your credit score the better your chances are of getting a loan with an attractive interest rate. Alternatively, a poor credit score may mean you can only qualify for a "subprime" loan—one with a higher interest rate and higher fees than those offered to applicants with "prime" credit records. So when it comes to getting a good loan, it's important that your credit report—the basis for your credit score—is accurate, complete, and in the best shape possible.

What are The Most Important Factors
in Determining My Credit Score?

Typically, your credit score is most influenced by two factors: how you pay your debts and how much debt you owe. For example, late payments on loans, a past bankruptcy, debt collections or a court judgment ordering you to pay money as a result of a lawsuit will negatively affect your credit score.

Lenders want to be sure that the debt you owe is manageable. One example: Lenders get concerned if you have a significant amount of debt compared to your income—say, if what you owe each month on all loans and credit cards exceeds one-third of your monthly income.

Other factors that can affect your credit score include how long you've used credit, how often you've applied for new credit and whether you've taken on new debt. .

How Can I Get My Credit Score?

Your scores, along with an explanation of how the score was derived, and are available online for a small fee. Check out the variouus resources on this page and throughout our website. Remember, your score may vary from one company to another.

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