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Understanding Your Credit Report

We take a look at the basics of a credit report.

A credit report is your permanent record.

At some point in school, a teacher or administrator probably threatened you, telling you that some misdeed or antic was going to wind up on your permanent record. As we later found out, that scary permanent record of behavior in school was more fiction than reality.

As an adult who's attempting to secure a loan or a credit card, though, that permanent record is all too real: It's your credit report. A good one paves the way for getting the credit you need at a low interest rate (the cost of the borrowed money). A credit report filled with late or missed payments, accounts in collection and maybe even a repossession or two scares off lenders, and those lenders that a bad report doesn't scare off will charge painfully high interest rates. The report simply summarizes the risk you pose as a borrower. It's also the basis of your credit score.

Where Are Credit Reports Created and Stored?

A credit report is a detailed record of your credit history gathered and maintained by three U.S. credit-reporting agencies: Experian, TransUnion and Equifax. Think of your report as a digital file folder, holding every detail about your financial activities. As you accumulate loans, credit cards, mortgages and so forth, those accounts, as well as a record of your payment history for each, go into that file folder.

Once in a while, the reporting agencies contact the lenders with which you have accounts to get an update on your outstanding balance and how promptly you make your payments. Lenders also report when they send an account to a collection agency or write off the balance as bad debt. Realistically, you should assume that any and every element of your finances will find its way into that credit file folder.

What Information Is Collected?

Although the information in a credit report may vary a bit, typically it includes four broad sections:

  • Identification and employment: This includes your name (and your spouse's name, if applicable), birth date, Social Security number, current employer and previous employers. It may also include your home-ownership status, as well as previous and current addresses.
  • Payment history: This section summarizes information from each of your accounts with different creditors, such as banks, retailers, credit card companies and additional lenders. How much credit you've been extended, your balances and whether you've consistently made payments will be itemized, as well.
  • Inquiries: Credit-reporting agencies keep a record of all the creditors that requested your credit history over the past year. They may also keep a list of businesses that requested your credit history for possible employment.
  • Financial-related public records: Events from federal, state and county courts that are considered public record may appear in your report. This can include bankruptcies, foreclosures, suits, wage attachments, tax liens and judgments.

What's in Your Credit Report?

The good news is you don't need to guess what's in your credit report. You can get a free copy of your report once a year from each of the three reporting agencies, Experian, TransUnion and Equifax. The Federal Trade Commission (FTC) maintains a website that makes it easy to get your credit report for free. 

Be sure to get your report from each one. They operate individually, and one may have information that the others don't. You never can be sure of the reporting agency or combination of agencies from which a lender will request a report; just because one reporting agency has the correct information doesn't mean that all three do. And if you find something inaccurate, you can fix it. All the agencies have a process for dealing with disputes.

What it means to you: Information that lenders give to one of the reporting agencies can stay on your record for 7 to 10 years. That's about as close to a permanent record as you can get.

John Beck

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