Credit Reports

It's important to know what's in your credit reports

A credit report is a record that contains information showing your credit history for every charge you make. The initial use for a credit report was for creditors to judge you're past history performance to see if you met their criteria for lending. Over the past decade or so, the use of these reports has changed. Insurance companies have used them to determine premiums and prospective employers review reports to establish character of the job candidate. There are three major credit bureaus (TransUnion, Equifax and Experian) and each maintains separate credit files on you. This is because different creditors report to different bureaus. It is important that you are able to navigate your report to know what it says.

Types of Reports

The following are the two types of credit reports:

• Consumer Version: Consumers are the only ones that have access to this version. A consumer version of a credit report lists all inquires, including promotional inquires, account numbers, and account management inquires.
• Business Version: The business version is an abbreviated version of the consumer version. This is the credit report that lenders see. The business version does not contain promotional inquires, account numbers, or account management inquiries.

Contents of a Credit Report

The following are the four primary categories of information contained in each type of credit report:

• Personal information
• Credit history
• Public records
• Inquires

Personal Information

• Full Name
• Current and previous address
• Social Security number
• Telephone number
• Date of birth
• Current and previous employers

Credit History

A credit report's credit history section shows how you have paid your credit accounts in the past and is used as a guide to determine whether you are likely to pay accounts on time in the future. A credit report's credit history section generally includes a listing of the credit accounts from the last ten years.

Each entry includes information, such as

• Account information
• Creditor's name
• Amount borrowed
• Amount owed
• Credit limit
• Date when the account was opened, updated or closed
• Timeliness of payments
• Late payments (these are noted as a negative activity)

Public Records

A credit report's public records section includes

• Tax liens
• Bankruptcies, and
• Court judgments (including child support judgments)

Inquires

A credit report's inquires section includes a listing of creditors or authorized users who have requested a copy of your credit report. The following are the three types of inquires:

• Normal Inquiries: Lenders are given permission to view your report to determine if you are a candidate for lending.
• Promotional Inquiries: Creditors review the credit bureaus' databases based on a set of parameters and receive mailing address information for individuals matching their criteria. They are not viewing reports, they just want to give people who meet their parameters a firm offer of credit.
• Account Management Inquires: Creditors who have permission to review the credit reports of their account holders may do so on a periodic basis. Many creditors have permission to do this as one of the terms of the lending contract.

The Fair Credit Reporting Act (FCRA) protects consumers from being penalized for inquires that they did not initiate or request. Therefore, promotional and account management inquires are excluded from the business version of credit reports.

A credit report does NOT include information regarding the following:

• Race
• Gender
• Religion
• Sexual orientation
• National origin
• Medical history
• Checking or savings accounts
• Personal lifestyle
• Political preferences
• Criminal record

Reviewing Reports

The best way to know what is contained within your credit report is to review it carefully. It is recommended that you review each of your three credit reports (TransUnion, Equifax, and Experian) at least once a year to make sure there are no errors.

The information on each report may vary from one bureau to another. This is because not all creditors report their information to every credit bureau.

The following information is required when ordering credit reports:

• Social Security number
• Date of birth
• Current and previous addresses for the past five years
• Maiden name (if applicable)

There may be a fee for ordering reports. Some states have laws that require credit bureaus to provide one or two free reports every year to their residents. Credit reports are also free after consumers have been turned down for credit. The consumer must ask the bureau that produced the credit report for a copy of it within a specified period of time, usually 60 days.

Correcting Errors

Credit reports should be accurate, but it is important to make sure. If there are errors or outdated information on a credit report, it could hurt your chances of getting a new loan and cost you money because creditors will charge you higher interest rates, even if approved. Each bureau initiated an investigation of any credit information disputed by a consumer. It is recommended that, while a dispute is being investigated, the consumer does not apply for credit.

Investigations are usually concluded within 30 days of the date the bureau received it. If additional information is needed for the investigation, the credit bureau will contact you and let you know what is needed to continue to process the dispute.

As part of the investigation, the bureau will check with other creditors whose information is being questioned. If the bureau finds that the information in the credit report is accurate, the creditor must notify the other major credit bureaus of the error so that they can correct their information.

If the disputed information cannot be verified within a 30-day time frame, the disputed item is deleted from the credit report or updated as requested. However, if the disputed information is subsequently verified, it will be reinserted into the report and you will be notified.

A revised report, reflecting the results of the investigation, is sent to the consumer at the conclusion of the investigation.

Credit Bureau Contact Information

• Equifax: (800)-685-1111
• Experian: (800)-397-3742
• TransUnion: (800)-888-4213

Credit Scores

Credit scores are the numerical translation of your credit report. It takes all of your information, like how many lines of credit you have and how you have managed them, and assigns an overall number. This number is between 300 and 850 (the higher the better) and tells a lender how likely you are to repay a loan and if they can expect your payments on time.

With the introduction of credit scores to the public several years ago, the transition to being referred to simply as a number (your credit score) is beginning. Your "number" can hold you back from getting a job, an apartment, and even increase your insurance premiums. Now more than ever it is important to keep your credit in good standing.

There are different types of credit scores. The most common one used is the scoring system from Fair Isaac Company, commonly known as a FICO score. Under the FICO system, there are five major categories that make up a credit score.

Payment History: 35% of Score

This is a huge factor in determining a credit score. Lenders obviously want to know how a consumer has managed their financial obligations in the past. Late payments are not a complete negative; however, they are definitely frowned upon. An overall good credit score can outweigh one or two instances of late payments. It is important to realize that having no late payments does not constitute an automatic approval either.

This factor evaluates the following:

• Payment information. This includes payments on all types of loans, such as Visa, MasterCard, American Express, retail store credit cards, installment loans, finance company accounts, and mortgage accounts.
• Public record and collection items. These include bankruptcies, judgments, lawsuits, wage garnishments, and collection items. These are considered serious; however, older items count less than recent items.
• No late payments. Each account that shows no late payment will increase a credit score.

Amounts Owed: 30% of Score

Many consumers carry balances on their credit cards, car loans, mortgages, and other types of accounts. Depending on the amounts owed, it can mean that the consumer is overextended, which may lead to late payments or no payments at all. This factor determines if the consumer can currently manage more credit responsibly.

This factor evaluates the following:

• What is owed? Even if an account is paid in full, a credit report may still show a balance on that account. The balance on the consumer's last statement is generally what is shown on their credit report.
• Who is owed? Part of this score takes into consideration the amount owed on specific types of accounts, such as credit cards and loans.

Length of Credit History: 15% of Score

A longer, positive credit history will increase a score. However, those with shorter credit histories may still get high credit scores depending on what the rest of their credit history is like.

This factor evaluates the following:

• The age of accounts. This takes into consideration the age of the oldest account and the average age of all the accounts.
• How often the accounts are used.

New Credit: 10% of Score

Opening several new accounts or having many inquiries into credit history in a short period of time will affect the chances of qualifying for credit. The FICO system distinguishes between searching for many new credit accounts and shopping around for the lower rates.

This factor evaluates the following:

• New accounts. This takes into consideration the age of the newest accounts.
• Recent credit history. If there was a period of late payments and the consumer has re-established his or her credit, the score will rise over time.

What Types of Credit Used: 10% Of Score

This factor does not usually play a big part in the lender's decision to extend credit; however, if there is not a lot of information in the other factors, this factor will become more important.

This factor evaluates the following:

• The mix of credit cards, loans, finance accounts, and mortgages the consumer has.

These five factors are all considered when establishing the consumer's credit score. No one factor will determine the score alone. Depending on the information in the credit report, one factor can play a more important role in the overall score regardless of the percentage that particular factor contributes. When a lender receives a credit score, they will also receive up to four "score reason codes." These codes explain the reasons the score was not higher (if it is low).

increasing Your Credit Score

It is important to realize that if your score is low, it will not stay like that forever. A score is a "snapshot" of your credit history at this point in time. It changes as new information is added to your credit history and it can improve if you manage your credit responsibly. We know that credit scores are made up of five parts, so let's see what you can do within each of these parts to improve your score.

Payment History
Pay your bills on time. Delinquent payments and collections can have a major negative impact on your score.

If you have missed payments, get current and stay current. The longer you pay your bills on time, the better your score.

Be aware that paying off a collection account will not remove it from your credit report. It will stay on your report for seven to ten years.

Amounts Owed
Keep balances low on credit cards. High outstanding debt can affect a score.

Pay off debt rather than move it around. The best way to improve your score in this area is by paying down your revolving credit. In fact, owing the same amount, but having fewer open accounts, may lower your score.

Do not close unused credit cards as a short-term strategy to raise your score.

Do not open a number of new credit cards that you do not need. This approach could backfire and actually lower your score.

Length of Credit History
If you have been managing credit for a short time, do not open a lot of new accounts too rapidly. New accounts will lower your average account age, which will have a larger effect on your score if you do not have a lot of other credit information.

New Credit
Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them off on time will raise your score in the long term.

Types of Credit Used
Apply for and open new credit accounts only as needed.

Have credit cards, but manage them responsibly. In general, having credit cards and installment loans (and making on-time payments) will raise your score. Someone with no credit cards, for example, tends to be a higher risk than someone who has managed credit cards responsibly.