Understanding Credit Reports

There are three major credit-reporting agencies in the United States (Experian, Equifax and Trans Union). Each maintains information about you and your credit history.

Your credit report reflects the information reported to the credit bureaus by each of your creditors. This information changes each time something is added or deleted from your credit file; for example, paying off an account, opening a new credit account, or making a late payment on one of your accounts. This updated information will be added to your credit record.

Lenders, employers, landlords, and other service providers buy that information in the form of a credit report to help them decide whether to approve your application for a loan, credit card, job, housing, or to offer you a product or service at a particular rate.

Because your credit file changes constantly, it's important that you review your information regularly to check its accuracy. To be certain your credit file is correct, request a copy of your credit report. If you think an entry is in error, notify the appropriate credit bureau and request that any errors be corrected.

Credit Bureaus

Equifax - www.equifax.com
P.O. Box 740241, Atlanta, GA 30374-0241
Phone: 800-685-1111

Experian - www.experian.com
P.O. Box 2104, Allen, TX 75013
Phone: 888-EXPERIAN (397-3742)

TransUnion - www.transunion.com
P.O. Box 1000, Chester, PA 19022
Phone: 800-916-8800

Information that makes up your credit report includes:

• Personal identifying information. This information is compiled from credit applications you have filled out and normally includes your name, current and previous addresses, Social Security Number, date of birth, and current and previous employers.
• Credit history. This section includes your bill-paying history and consists of details about credit accounts that were opened in your name or that list you as an authorized user (such as a spouse's credit card). Account details, which are supplied by creditors with which you have an account, include the date the account was opened, the credit limit or amount of the loan, the payment terms, the balance, and a history that shows whether or not the account has been paid on time.
• Credit Inquiries. When you apply for a loan, mortgage, insurance or credit card, you sign an authorization form, which allows the lender, or credit grantor to obtain a copy of your credit report. The inquiries section of your credit report contains a list of everyone who has accessed your credit report within the last two years. Companies that have received your name and address in order to offer you pre-approved credit offers are also included, however these inquiries do not count against your credit score.
  
  Your credit score doesn't just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means the higher your credit score is the lower your interest rate will be.
• Public records. Matters of public record obtained from government sources such as courts of law, including liens, bankruptcies, and overdue child support may appear on your credit report. Most public record information stays on your credit report for 7 years.
• Dispute statements. The report may also include any statements you have made disputing information on the report. Most credit bureaus allow both the consumer and the creditor to make statements to report what happened if there is a dispute about something on the report.

Who has Access to Your Credit Report?

Anyone with what is considered a permissible purpose can look at your report. These companies, groups, and individuals include:

• Potential lenders
• Landlords
• Insurance companies
• Employers and potential employers (usually only with your written consent)
• Companies you allow to monitor your account for signs of identity theft
• Some groups considering your application for a government license or benefit
• A state or local child support enforcement agency
• Any government agency (although they may be allowed to view only certain portions)
• Someone that has your written authorization to obtain your credit report

What is a Credit Score?

A credit score is a number that is calculated based on your credit history. This number helps credit grantors identify the level of risk they may be taking if they lend to someone. While the same end result can come through reviewing the actual credit report (which lenders usually do), the credit score is quicker and less subjective. The system awards points based on information in the credit report, and the resulting score is compared to that of other consumers with similar profiles. With this information, lenders can predict how likely someone is to repay a loan and make payments on time.

Although there are several scoring methods, the score most commonly used by lenders is known as a FICO because of its origins with Fair Isaac and Company. Fair Issac is an independent company that came up with the scoring method and software used by lenders, insurers and other businesses. These numbers range from 300 to 850, with the higher number indicating a better credit risk. Your score considers both positive and negative information in your credit report. Late payments will lower your score, but establishing or reestablishing a good track record of making payments on time will raise your score.

The three national credit bureaus each have their own version of the FICO score with their own names. Equifax has the Beacon system, TransUnion has the Empirica system, and Experian has the Experian/Fair Isaac system. Each is based on the original Fair Isaac FICO scoring method and produces equivalent numerical results for any given credit report. Some lenders also have their own scoring methods. Other scoring methods may include information such as your income or how long you've been at the same job.

Your credit score doesn't just affect whether or not you get a loan; it also affects how much that loan is going to cost you. As your credit score increases, your credit risk decreases. This means your interest rate decreases.

Your credit report must contain at least one account which has been open for six months or more, and at least one account that has been updated in the past six months for you to get a credit score. This ensures that there is enough information in your report to generate an accurate score. If you do not meet the minimum criteria for getting a score, you may need to establish a credit history prior to applying for a mortgage.