Your credit report provides lenders with information to assess whether to lend you money, provide you with credit or mortgage offers, or rent or sell you property. This data includes account details such as credit cards and loans, as well as payments history (35% of FICO score) and public records such as bankruptcies and legal judgments.
What Is A Credit Report?
Credit reports provide lenders with a snapshot of your financial history that they use to assess whether or not you’re suitable for credit cards, loans and mortgages. Experian, Equifax and TransUnion are credit bureaus that collect data from sources that extend credit to you before compiling it into reports for each bureau to analyze. While individual details will differ slightly between agencies, each should provide a similar picture of your finances.
Credit reports include your personal and identifying information such as name, birth date, Social Security Number and addresses, both current and previous. In addition, these reports list current and past credit accounts such as revolving credit (credit cards) as well as installment loans like auto loans, personal loans and mortgages with their respective limits, highest balances and seven year payment histories. Any missed payments will also be listed here, as well as public records such as bankruptcy filings, tax liens or legal judgments against you (which is typically taken from court documents).
Each of the three credit reporting agencies employ different formulas to convert data they gather into your credit score. While there may be various variables at play, all three agencies take into account some key aspects:
Your credit report’s timeliness is of paramount importance. Every month, thousands of lenders such as retailers, credit card companies, banks and finance companies send updates directly to credit reporting agencies that then send these updates onward to you, the consumer. As these updates can significantly impact your score, it’s essential that they be accurate and complete.
Free Yearly Credit Report
Federal law guarantees you one free report from each of the three nationwide credit bureaus every 12 months. You can request this by contacting their toll-free numbers, ordering them online, or mailing in an order form. Although ordering all three simultaneously may save time, please be mindful that creditors and other sources don’t always share information at the same time with all three bureaus.
Monitor your credit report regularly in order to detect mistakes and protect against identity theft. Any mistakes could range from misspellings or incomplete account balances. Ideally, check it at least annually so as to ensure all the information provided is correct and complete.
As well as reviewing your credit report, it is also wise to monitor any inquiries listed therein. There are two kinds of inquiries listed, hard and soft inquiries. Hard inquiries have an adverse impact on your score while soft inquiries do not. Hard inquires are formal requests to check credit, such as applying for a loan.
You must give permission for a hard inquiry of your credit score. Any business that does not get your approval is subject to penalty. You can dispute a hard pull if you are sure you never gave permission.
It is wise to limit the number of hard inquiries appearing on your report since too many could cause your score to decrease significantly. You can do this either through reviewing your free annual credit report or via free or paid monitoring services.
Equifax, Experian, and TransUnion all offer free copies of your credit report; however, federal law does not mandate they include your score in those reports. You may have to pay seperately for that information. If a site offers this data for free, be sure to ‘read the fine print’ for details.
What Is A Good Credit Score?
A credit score is a numerical representation of your creditworthiness, based on your past borrowing and repayment behaviors. It is a three-digit number that ranges from 300 to 850, with higher scores indicating better creditworthiness. The best credit score is generally considered to be in the range of 750 to 850, as it reflects a history of responsible financial management and makes you an attractive borrower to lenders.
To better understand where your credit score stands, it’s important to be aware of the different credit score ranges and what they signify:
Poor Credit (300-579): A credit score in this range indicates a high risk to lenders. It suggests a history of missed payments, defaults, or bankruptcy. Individuals in this range may struggle to obtain credit or may be subject to higher interest rates and less favorable loan terms.
Fair Credit (580-669): A fair credit score indicates some credit issues but also some positive financial behavior. While you might be eligible for credit, you may still face limitations or higher costs.
Good Credit (670-739): A good credit score suggests responsible financial behavior, making you a reliable borrower. Lenders are more likely to offer you favorable loan terms, lower interest rates, and higher credit limits.
Very Good Credit (740-799): With a very good credit score, you are considered a low-risk borrower. You can expect to be offered attractive loan terms, lower interest rates, and higher credit limits.
Excellent Credit (800-850): An excellent credit score puts you in the top tier of borrowers. Lenders will view you as highly trustworthy and responsible, resulting in the best loan terms, lowest interest rates, and highest credit limits.
Other factors not taken into consideration for your score include your race or ethnicity, religion, nationality, sex status, marital status, political affiliation and education background. These factors could all have an impact on securing jobs requiring handling large sums of money, or security clearance in high-level positions.
Your credit report contains personal and financial details about you, such as your name, address, Social Security number and date of birth; as well as past due and delinquent debts, collections and bankruptcies that appear in it. Credit bureaus sell this data to businesses which use it when deciding if they should lend you money or provide credit/insurance; rent or sell you housing based on that data. According to the Fair Credit Reporting Act, each credit bureau must give you one free copy annually of its report.
Acquiring a credit report is only half of the battle. Understanding its contents and improving your score are the keys to financial success. Your credit score plays a huge role in your buying power; from whether or not you qualify for car loans and credit cards to their interest rates and terms.
How Do I Get My Credit Report?
The easiest way is to go to annualcreditreport.com. This site is officially set up to give you a report from all three bureaus. Be alert for other websites that try to imitate or impersonate this official site.
Equifax, Experian and TransUnion each offer free annual reports through toll-free phone numbers or websites; or by mail. You may choose whether or not to get them all at the same time or stagger them throughout a 12-month period. Some financial advisors suggest doing the latter, so they can monitor what’s happening within it more quickly and identify errors more promptly.
Even though your free credit reports do not include your score, they provide valuable personal and financial details like the identities and amounts owed to creditors; payments made on credit accounts; when lenders check your credit; collections notices sent; bankruptcy filings made or identity theft incidents discovered.
Your credit report contains details on your employment history, public records such as bankruptcies and foreclosures, past and present addresses, contact info as well as past addresses that could prevent identity theft. You should use this data to keep yourself up-to-date and avoid identity theft.
When you detect errors on your credit report, it’s essential that you immediately report them with each national credit bureau and creditor who reported them. Doing so could raise your score, making it easier to qualify for loans or lines of credit as well as possibly lowering mortgage or car loan interest rates. Reviewing your report regularly also allows you to prepare to take out loans, apply for cards or rent apartments and detect anyone using your identity to open accounts in your name.
Each bureau outlines a process on their website that explains how you can dispute information on your report. You must complete this process with each and every bureau that has information you deem to be incorrect.