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Credit Report

Posted by: Staff Writer | May 22,2008

The Lowdown on Credit Reports

If you thought you were all done with report cards once you graduated to adult life, think again.  The credit report is like the ultimate report card on your financial health.  Ever default on a loan?  It’s in there.  Ever buy a house?  It’s in there.  Ever sign up for a credit card, then abruptly cancel it?  It’s in there too.  Your credit history will affect financial transactions you get in the future: getting a mortgage, new credit card, or any other type of loan.  It’s vitally important to check up on your credit report to make sure that it is as clean as can be.  

What Goes Into a Credit Report

Credit reports vary for the three main credit bureaus: Experian, TransUnion, and Equifax.  In fact, it is recommended that you get a copy of your credit report from each of these agencies, as you don’t know which one will have inaccurate information.  Only viewing your complete credit history can lead you on the way to repairing your credit rating.  All that said, there are some basic pieces of information you’ll find on any credit report:

1.    Personal Information.  Your name, address, Social Security number, and date of birth.  Believe it or not, these can be wrong.  Sometimes a person with the same name will show up on your report.  Previous addresses are also included.  
2.    Credit History.  The heart and soul of your credit report.  You entire bill-paying history with credit cards, retail outlets, finance companies, mortgage lenders, and other creditors.  Included in the history is the amount of the loan, amount of monthly payments, and any defaults.  
3.    Public records: the worst thing for your credit rating.  These include tax liens, foreclosures, bankruptcies, and lawsuits resulting from unpaid debts.  
4.    Inquiries.  This includes any creditor that has requested to see your report in order to dole out a loan.
5.    Disputes.  If anything in the credit report is inaccurate, you can dispute the mistake.  If the dispute is not changed after a request, you can still write a 100 word statement outlining why the item should be removed. 

What doesn’t appear on a credit report:

1.    Bank account balance
2.    Criminal record
3.    Income
4.    Race/religion
5.    Driving record

Whenever you apply for a new loan, a credit reporting agency will access your credit report to see if your eligible for the loan.  There are thousands of small credit bureaus affiliated with Experian, Equifax, and TransUnion that update your credit report whenever you make a new transaction. 

How Lenders Read a Credit Report

There are some items that are worse for your credit rating than others.  Take an extreme example: you sign up for 10 credit cards within a ten month period.  Each credit card application will have a separate inquiry – considered hard inquiries.  By applying for so many credit cards at once, it exhibits some financial distress, even if every one of those cards has yet to be used.  Requests by employers or your own requests are considered soft inquiries and don’t get listed on the report.  

Generally, having too many open accounts at once signals you as a potential risk.  Defaulted payments are obviously a big one.  Defaults can stay on a report for seven years.  Bankruptcies will remain on the report for seven to ten years.  Maxed out cards are also a warning sign.  It’s recommended that you keep credit cards at 40% of the credit limit. 

Here’s what looks good on a credit report:

1.    Credit cards with longevity.  The longer you’ve held onto a card, the better looks.  This is the main reason why you shouldn’t cancel old accounts, unless the card has very unattractive yearly fees.  
2.    Large accounts paid in full.  Larger debts carry more weight than smaller debts, such as a mortgage vs. a credit card with a $300 credit limit.  However, these need to have been paid off responsibly. 

Getting a Free Credit Report

The Fair Trade Reporting Act stipulates that you can have access to your credit report for free once a year.  After that, you will have to pay for additional credit reports.  Credit monitoring is the process of keeping tabs on your credit report on a consistent basis to ensure that your credit report is in the clear.  In the age of identity theft, credit monitoring is recommended, as evidence of identity theft will show up on your credit report – such as accounts being opened in your name that are untrue.    

To get a report, contact the three major credit reporting agencies: Experian, Equifax, and TransUnion.  It has been estimated that close to 30% of credit reports have innacurracies, so you should request a report even if you are not going to apply for a loan in the immediate future.  In fact, disputes can take six months or more to be cleaned up, so you should try to fix inaccuracies as soon as possible.

Making Changes on Your Credit Report

Getting a report online is the easiest solution for fixing a credit report, as often you can just click a box next to a disputed item.  Otherwise you need to:

1.    Make a copy of the credit report.
2.    Circle the disputed claim.
3.    Write a letter to both the credit bureau and the creditor to which it applies explaining why the listing is in error.  
4.    Wait at least 30 days for the claim to be processed.  
5.    Once the dispute is complete, order another copy of your credit report to ensure that it is accurate.  

To sum up, you shouldn’t wait until you are applying for a big loan, such as a mortgage, to go through your credit report.  Faults in your credit report can have repercussions in other parts of your life.  You will also be able to see if you have any legitimate outstanding accounts that need to be closed or updated.  Finally, it will give you a detailed view of your credit history, showing exactly where credit repair might be necessary. 

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