What You Need to Know About Your Credit Report

Man looking at his credit report

Barbara O’Neill, Ph.D., CFP®, Rutgers Cooperative Extension, oneill@aesop.rutgers.edu

Remember those report cards that told you (and your parents!) how you were doing in school? Maybe you thought those days were over, but they’re not. Every day, millions of people are “graded” with credit reports. The better your “grade,” the better your chances of obtaining a loan or credit card and obtaining lower-cost credit that can save thousands of dollars of interest. Credit information is also used in setting rates for insurance policies. In addition, potential landlords and employers use it as a character reference.

A credit report is a summary of someone’s history of paying debts and other bills. It is prepared by credit reporting agencies (a.k.a., credit bureaus) and used to make business decisions by those who have a legitimate need for the information (e.g., creditors, insurers, employers, and landlords). Without credit reports and credit bureaus, individual creditors and businesses would need to gather necessary information about potential borrowers, themselves, which would be slow, costly, and inconvenient.

The three major credit bureaus are Equifax (www.equifax.com), Experian (www.experian.com), and TransUnion (www.transunion.com). Essentially, they are clearinghouses of consumer credit information. In other words, they do not rate the creditworthiness of individual credit users but simply keep records about them. The reports that credit bureaus compile include information supplied by both consumers (e.g., information contained in a credit application) and the creditors with whom they do business. Creditors regularly provide information to credit bureaus about the debt repayment practices of consumers to whom they have lent money. Other information comes from public records. Because different creditors do business with different credit bureaus, their databases will vary and so will credit reports provided to consumers. For example, one might include Macy’s and, another, J.C. Penney’s.

Regardless of the credit bureau providing information, there are four main sections to a credit report:

  • Identifying Personal Information
    Includes personal data about an individual consumer including name, current and previous address, date of birth, and Social Security number
  • Public Record Information
    Includes information gleaned from court records such as foreclosures, repossessions, court judgments, and bankruptcy
  • Credit History Information
    Includes a list of creditors that provide data to the credit bureau providing the report and data about the credit limit, highest balance, and timeliness of payments
  • Inquiries
    Includes credit report requests as a result of credit card or loan applications by consumers and inquiries for promotional marketing purposes by creditors (often labeled “PRM” to identify them)

In the credit history section, the words “paid as agreed” or “current” indicate that credit users have made required payments on time. Late payments are generally reported in increments of 30 days (e.g., 30, 60, 90, and 120 or more days late). Most credit reports list past credit history data on revolving credit accounts (e.g., credit cards) for a specified number of previous months (e.g., 18 to 24 months).

Credit experts recommend that consumers request their credit report every year to check for inaccurate information and evidence of identity theft. People with negative information in their credit file also want to check that it is removed after 7 years (10 years for bankruptcy). It is also a good idea to check your credit report before making a major purchase, like a home or car, so you are not delayed if it contains incorrect information.

Below are some common errors to look for in a credit report:

• Accounts that are not yours. Perhaps they belong to a family member living at your address or even to a stranger with the same name. Unidentified accounts could also provide evidence of identity theft.

• Incorrect information such as late payments when bills were paid on time or multiple collection agency notations for a single debt.

• Negative information (e.g., late payments) remaining after the seven-year “drop-off” period.

Under the Fair and Accurate Credit Transactions Act (FACTA), Americans are entitled to one free credit report per year (defined as a 365-day period) from each of the three major credit bureaus listed above. An annual credit report check up with each credit bureau will not damage your credit history. Requests can be made online, by phone, or by mailing a request form. Credit reports generally do not include a credit score, however. Credit bureaus are not mandated to provide free credit scores, like they are for free credit reports, so you’ll generally need to pay a fee to obtain your credit score.

Information needed to make a free credit report request is available on the government-mandated Central Source Web site at www.annualcreditreport.com or by calling 877-322-8228. Reports can be ordered online, by phone, or by mail using an Annual Credit Report Request Form available on the Central Source Web Site. Online credit reports can generally be accessed immediately. Phone and mail requests will be processed within 15 days of their receipt by the credit report processing service.

Consumers can order free annual credit reports from all three credit bureaus at the same time or stagger their requests. Many consumer advocates advise the latter (e.g., requesting a free report every four months from a different credit bureau). This way, you are pulling a credit report regularly to check for errors and evidence of identity theft. Additional free credit reports are also available to consumers, upon request, within 60 days of an “adverse action” (e.g., denial of credit, employment, or insurance), if they reside in seven states (CO, GA, ME, MD, MA, NJ, and VT) that mandate free credit reports, and if they are receiving welfare payments, are unemployed and plan to look for a job within 60 days, or have an inaccurate credit report due to fraud, including identity theft.

Beware of “imposter” Web sites with similar URLs (sometimes with a word intentionally misspelled) or the word “free” in their name. Some have been connected with identity theft phishing schemes while others try to sell expensive credit monitoring or other fee-based services, often after a short free trial period. Consumer advocates have complained that these sites intentionally mislead consumers, who must generally cancel their “free trial offers” within 30 days to avoid incurring charges.

If there are errors in a person’s credit report, the Fair Credit Reporting Act provides a procedure to dispute incorrect information. A complaint form is provided with the credit report and copies of documentation should be sent as well to support the complaint. Credit bureaus must generally respond within 30 days and correct any errors, if necessary. If the disputed information is found to be inaccurate, the information provider (e.g., a creditor) must notify all three credit bureaus so they can correct the credit file in question.

Consumers also have the right, in most states, to freeze their credit report. This is an identity theft prevention method because a security freeze prevents thieves from opening new credit accounts in a victim’s name. When someone freezes their credit report, identity thieves cannot open new accounts because potential creditors cannot check their credit file. State laws for freezing credit reports, and “thawing” them when a consumer wants to apply for credit, vary from state to state.