July 10th, 2012
10 Basic Credit Report Questions & Answers
Today on the blog we’re keeping it simple and covering the basics of credit reports. Here are ten questions and answers all about credit reports.
1. What is a credit report?
Your credit report is a life-long record of your borrowing history. It includes detailed information on all of your credit accounts, from your first credit card to your most recent home loan.
2. What information is included in my credit report?
All of your credit accounts are included on your credit report: credit cards, student loans, mortgages, auto loans, home equity lines of credit and personal loans. Also included is some personally identifying information, such as any past names you may have used (like your maiden name) and past mailing addresses.
3. How is my credit report created?
You actually have three credit reports, one created and maintained by each of the three credit bureaus: Equifax, Experian and TransUnion. Each creditor you do business with (like your credit card company) will report your account information and payment activity on your account to the credit bureaus. The credit bureaus compile this information, from every creditor, into your credit report.
Helpful tip: Not all creditors report to each credit bureau. For instance, you may have a credit card that is only reported to TransUnion and Equifax. Keep this in mind when checking your credit reports.
4. Who uses credit reports?
Credit reports are used to generate your credit score, which is a type of assessment of credit risk. It essentially grades your credit report. When you apply for credit, the lender will look at your credit score to decide whether or not to approve you. Others may look at your credit report, too, for legitimate business purposes, like employers or landlords. However, no one may look at your credit report without your explicit permission.
Helpful tip: When your credit is pulled, it causes a hard inquiry, which will ding your credit score a few points. Read more about hard and soft inquiries.
5. What are they looking for and how do they use it?
Lenders are looking for signs that you may miss a payment if they give you a loan. The way they do this is by assessing your past behavior, which is proven to predict future behavior. In other words, if you’ve missed lots of credit card payments in the recent past, lenders will be less likely to lend to you in the near future, or they will give you a higher interest rate on your loan. Employers and landlords may be looking for negative past behavior that may indicate future risky behavior as well.
6. How often is my credit report updated?
Each creditor or financial institution that reports your account information to the credit bureaus will typically do so once a month. For instance, your credit card balances will be reported once a month, meaning that the balances that you see on your credit report will not necessarily reflect the most recent balances on your account. Each creditor has its own guidelines for when it reports to the bureaus.
7. How does my credit report relate to my credit score?
Your credit score is a three-digit numerical grade of your credit report. There are many algorithms for creating a score from your credit report, depending on the type of lender wishing to see your score. Your credit score helps lenders predict whether or not it’s a good idea to let you borrow money from them and set various terms, like interest rates and credit limits.
8. How much does it cost to check my credit report?
In short, nothing. It’s your legal right to receive a copy of your credit report from each of the three credit bureaus once a year. That means you get three reports–one from Equifax, Experian and TransUnion. If you want to check it more than once from a single credit bureau, you may have to pay approximately $15 each subsequent time.
Helpful tip: There are a few other times when you might be eligible to receive an additional free credit report. Check out this article on exercising your credit rights.
9. When I check my report, what am I looking for?
When you pull your credit report, you should first make sure that all of the personal and account information is familiar to you. Remember that your credit report also includes your closed accounts, so you’ll see those there, too. Next, you’ll want to check for any derogatory marks you weren’t aware of. These include accounts in collections, bankruptcies, foreclosures, delinquent payments and public records.
Helpful tip: Check out your free Credit Report Card to see if there are any derogatory marks on your credit report.
10. What can I do to improve my credit report?
In most cases, it will take time for bad items to fall off of your credit report and late payments to become less impactful on your credit health. You can’t do anything to speed along this process. However, you can start some good habits that will lead to better credit health.
- Make all of your bill payments on time. Late payments reflect negatively on your credit score.
- Keep your credit card balances to less than 30 percent of your overall credit limits. This shows lenders that you’re using your credit responsibly, but not overusing it.
- Avoid applying for several credit cards at once. This will result in a number of hard inquiries on your credit, which is considered negative as well.
- If there are errors or inaccuracies in your report, you can dispute them yourself or use a credit repair company, such as Lexington Law Firm.
Need more about how to improve your credit health? Check out these articles:
How to Woo Your Credit Score
How Do I Improve My Poor Credit?
4 Ways to Get a Better Credit Score Now
4 Ways You Could Be Hurting Your Credit
Thanks for sharing your insights on credit reports. You have explained the details so nicely. You have got it right.These are certainly the questions that anybody would ask regarding credit reports.
This is a great article. Thanks for highlighting the important questions about credit reports that many people would like to ask but sometimes do not have time to inquire about. I do agree with you that late payments connote a negative feedback on a credit score so I do my best to make on-time payments a habit. Great blog!
Unfortunately too few people bother checking their credit reports. If they did they stand a better chance of finding any errors on their records, in addition to fraudulent activities.
What this article failed to mention is the type of inquiries done by collection agencies and debt buyers. In theory, because a consumer does not authorize a collection agency or debt buyer to pull a credit report, these inquiries should be soft inquiries. In reality, these three credit bureaus “look the other way” and illegally permit the collection agencies and debt buyers to pull a hard inquiry which creates an adverse effect on one’s credit score. If a consumer was playing “hardball” with a collection agency to resolve the collection of a debt, the collection agency could do a hard pull every day for the next 10 years. This would totally destroy the consumer and his credit score.