Understanding Your Credit Report
Your credit report is one of the most important parts of your financial life. Without a credit report, you may struggle to get loans to buy a home, open credit cards or even get utility accounts in your name. Your credit report shows your credit history, which lenders use to determine the risk of lending to you.
Here’s what you should know about your credit report, and how to make sure it’s accurate.
What Is a Credit Report?
When opening a credit account or taking out a loan, the creditor keeps a record of the amount of debt, timeliness of the payments and when you pay it. The creditor reports this information to one or more of three credit reporting agencies: Experian, Equifax and TransUnion. The information on the credit report shows potential lenders and other organizations a variety of facts about your financial life, including:
- Your name and address history
- Types of debt you have, such as revolving debt, student loans or mortgages
- How much debt you have in relation to available credit
- Length of time you keep accounts open
- Presence of late or missed payments, or debts that have gone to collections
Most factors stay on your report for two years. If you file for bankruptcy or lose property due to foreclosure, those items will show up on the report longer.
How Do You Use a Credit Report?
When applying for a loan, it’s typical for the lender to check your credit report. You may also need to submit a credit check for new vehicle insurance, apartment applications and more. The organization reviewing the application may look at your detailed credit report, or it could simply check your credit score. It uses this information to determine whether to approve your application.
Although credit reports are intended mostly for lenders, it’s wise to look at your credit reports as well. Getting reports from all three agencies helps you see who is reporting debts in your name, which can be a good way to spot incorrect details or identity theft.
How Often Should You Check a Credit Report?
Generally, plan to get a copy of your credit report at least once a year. Creditors don’t always report to all three agencies, so you need to request a report from each one. You don’t have to pay for this service. Some companies offer the ability to get your full credit report and credit scores a few times a year, in exchange for a monthly or annual fee.
In addition to your yearly review, you may want to check your credit if:
- You’re planning to apply for a loan soon
- You have recently found suspicious charges on your accounts
- You have accumulated or paid off debt since your last report
Reviewing your credit report a few months before applying for a loan gives you more time to correct any errors.
What Is a Credit Score?
A credit score is a three-digit summary of your creditworthiness, according to the reporting agency. Many lenders look at your score to see if it fits their minimum benchmarks for a successful loan application. It’s important to look at your scores from all agencies, as they may differ significantly.
How Can You Fix Credit Report Errors?
If you notice errors on your credit report, you should write directly to the agency to dispute it. The agencies may have online forms you can complete to dispute the error. The agency has 30 days to contact the company reporting the inaccurate information, get further evidence and provide a resolution. If the dispute is successful, you should request a copy of your credit report in two to three months to confirm the change.
Keeping your credit report as accurate as possible requires regular monitoring and occasional corrections. By investing the time, you can help ensure that your credit report shows the most correct financial picture to prospective lenders. Please read the accompanying resource, by Stein Saks, for further insight on this topic.
This infographic was created by Stein Saks, a credit reporting errors law firm