A healthy credit report and a strong credit score are important indicators of financial wellness. Our goal is to demystify credit reports and help you understand the factors that impact your credit score. This guide will help you learn the basics of credit and optimal ways to establish, improve, rebuild and protect your credit.
Credit bureaus are organizations that track and report your personal information, credit information including credit limits and payment history. The information found in a credit report from a credit bureau is used to calculate your ability to repay future loans.
Credit bureaus are not government agencies and are private corporations that offer two services:
compile credit histories on prospective borrowers and
provide credit information to lenders.
Information in a credit report may include payment habits, number of credit accounts, the balance of accounts, and length and place of employment. Lenders use these reports when making decisions on extending credit.
There are three major credit bureaus in the United States:
A credit report contains information about your credit history and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using, and whether a debt collector is collecting on any debt you owe.
Your credit report contains:
• Current and previous addresses and employers, social security number, and date of birth
• Public record information including liens, judgments, and bankruptcy filings
• Outstanding debts that have been sent to a collection agency
• A list of your credit accounts and loans including:
– Current and past payment information (including late payments)
– Current balances on your credit cards
– Current amounts of outstanding loans
• Overdue child support payments
• Companies that have recently requested your credit file
Your credit report does not contain information about:
• Political party affiliation
• Medical history
• Criminal record
Lenders use these reports to help them decide if they will loan you money, what interest rates they will offer you, or to check the status of an existing loan. Different types of companies can purchase these credit reports to help them with business decisions such as extending credit, insurance quotes, apartment rental and offers of employment.
The Fair Credit Reporting Act requires each of the nationwide credit reporting companies — Equifax, Experian, and TransUnion — to provide you with a free copy of your credit report, at your request, once every 12 months. For example, you request your credit report on April 15 this year, you will not receive another free copy until 12 months later on April 15 or 16 of the following year.
Do not individually contact the three credit bureaus directly.
The three nationwide credit bureaus have set up one website, a toll-free telephone number, and mailing address through which you can order your free annual report. To order your free copy of your credit reports
or complete the Annual Credit Report Request Form and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
You may order your credit report from each of the three nationwide credit bureaus at the same time, or you can order one at a time which is more advisable. There are other reasons you may receive a free copy of your credit reports such as denial for credit, insurance or if you’re unemployed and plan to look for a job within 60 days or victim of identity theft. Otherwise, a credit bureau may charge you a reasonable amount for another copy of your report if requested within the 12 month period.
Under the Fair Credit Reporting Act, you have the right to access your credit report and ensure the accuracy of the information provided. Whenever you dispute a record in your credit report, the credit bureaus are required by law to start an investigation of your claim and delete information that is inaccurate or unverifiable.
Step 1:Get a copy of your credit report. Request your free copy of your reports from AnnualCreditReport.com (www.AnnualCreditReport.com). Request and review one credit report at a time.
Step 2:Verify the information on your credit report is correct. Check your name, addresses, public records, and inquiries. Then check each trade line to make sure the information creditors are reporting are accurate such as credit establish date, balance, limits and payment history.
Step 3:Initiate the dispute online. Once you have access to your credit report online begin the dispute process and provide necessary information or documentation regarding your dispute.
Step 4:Submit the disputes. The credit bureaus have 30 days from receipt of the dispute to provide an answer regarding your inquiry.
The credit bureaus will provide an answer for each of your dispute whether favorable or not. If you disagree with any of the answers you can request a reevaluation by submitting more information that supports your claim.
A credit score is a numerical representation of your credit history. It makes it easier for lenders to systematically make loan decisions. Credit scores are a reflection of how you’ve handled credit in the past and are used to determine your potential credit relationship in the future.
The exact information used by credit scoring providers (such as FICO) to calculate your credit score is a proprietary company secret but there is some publicly available information. For example, FICO has shared that 5 factors make up your credit score:
Payment History (35%) – the largest percentage because paying on time is important for lenders to know.
Amounts Owed (30%) – also known as capacity. It’s based on the amount of outstanding credit you have against your available credit limits.
Length of Credit History (15%) – how long you’ve had credit plays a role in your credit score. Longer credit histories are viewed positively. Adding new accounts can lower your overall credit history length.
Types of Credit in Use (10%) – this is based on the mixture of credit such as credit cards, personal loans, mortgages, auto loans, etc. A good variety is generally accepted as strengthening credit scores.
Account Inquiries (10%) – applying for credit impacts your credit score and having too many recent loan applications (or inquiries) can have a major negative impact. Apply for credit when absolutely necessary.
There are a variety of credit scoring systems such as VantageScore or the credit bureaus own scoring methods. The most widely used is the FICO credit score. Each credit bureau creates and offers their own credit score so it shouldn’t be confused with a FICO score.
Many financial institutions, credit card companies, and credit report monitoring tools may offer a free credit score. Some of these scores are FICO scores so consult with the company offering the free credit score on what scoring system is being used.
Additionally, credit scores that you or the lenders see may vary from one credit bureau to another. It is more important to know what range your credit score falls to determine if you have poor, good or excellent credit. There are different types of credit scoring systems and therefore different credit score ranges.
It may seem like a catch-22 when you can’t get approved credit because you don’t have credit. A credit history is important in order to buy a house or car and get the best rates. In some instances, credit histories may be used to price insurance premiums, get an apartment, set required down payments for utilities and may be used as part of employment screening.
Your credit score is a reflection of how you’ve handled credit and loans. By making sure you make timely payments and do not carry credit card balances from month-to-month your score should be satisfactory. However, mistakes do happen either from financial institutions reporting incorrect information to a missed payment due to simply forgetting a due date.
There are many reasons to rebuild credit after a bankruptcy, foreclosure, a car repossession or reported collection accounts. Rebuilding your credit sooner rather than later can help you get from bad to good credit faster. Good credit can help you get better financing options, rates, and terms that are more beneficial to your financial wellbeing.
Although you may have experienced a financial setback that affected your credit standing, rebuilding credit can happen immediately. You want to rebuild credit after a major credit setback to ensure you have access to credit needed and at better rates and terms in the future.
The first step in rebuilding credit is to assess your actual credit standing to determine what is necessary to rebuild your credit profile. A thorough assessment and understanding can determine if you will need to settle outstanding debts, remove paid collection accounts or reestablish credit through unsecured credit cards or loans.
How to protect your identity through credit bureaus
Monitoring your credit report can protect you from the headaches and problems of identity theft. By checking your credit report annually you can be on top of incorrect information. Additionally, you can enroll (and pay) for identity monitoring service which typically scans identity information in credit applications and monitors your credit for the unusual activity.
The credit bureaus offer a fraud alert and a credit freeze to protect you in the event of identity theft. A credit freeze locks down your credit. A fraud alert allows creditors to get a copy of your credit report as long as they take steps to verify your identity.
A key provision of the Fair and Accurate Credit Transactions Act of 2003 is your ability to place a fraud alert on your credit record. You are able to use this option if you believe you were a victim of identity theft. The alert requires any creditor that is asked to extend credit to contact you by phone and verify that the credit application was not made by an identity thief.
You can always place a credit report freeze with each credit bureau by contacting them directly. A credit freeze is also known as a security freeze will restrict access to your credit report. This will make it more difficult for identity thieves to open new accounts in your name.
ID theft protection services are products that are usually offered by companies such as the credit bureaus, credit card companies or other businesses to monitor your credit report for unusual activity. You can receive these services for free or through a paid monthly subscription.
ID theft protection services vary but most provide daily tracking and reporting of activity on your credit report such as a notice of credit inquiry.
If you decide that you don’t want to receive prescreened offers of credit and insurance, you have two choices: You can opt out of receiving prescreened offers for five years or permanently.
To opt out for five years: Call toll-free 1-888-5-OPT-OUT (1-888-567-8688) or visit www.optoutprescreen.com. The phone number and website are operated by the major consumer reporting companies.
To opt out permanently: You may begin the permanent Opt-Out process online at www.optoutprescreen.com. To complete your request, you must return the signed Permanent Opt-Out Election form, which will be provided after you initiate your online request.
When you call or visit the website, you’ll be asked to provide certain personal information, including your home telephone number, name, Social Security number, and date of birth. The information you provide is confidential and will be used only to process your request to opt out.
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