Understanding Your Credit Report & Credit Score

A credit report provides a detailed breakdown of your credit history, prepared by a credit bureau. Specifically, the three major credit bureaus—Equifax, Experian, and TransUnion—collect financial information about you and compile their reports based on that information. Additionally, they must provide you with a free report at least once a year.

Why Credit Reports Matter

Lenders use these reports, often along with other data, to determine your creditworthiness. Insurance companies, employers, and landlords may also check your credit reports. These reports focus primarily on your use of credit. However, they do not include information on other types of bills, income, investments, or other assets.

The Importance of Monitoring Your Credit

Staying on top of your credit history is crucial to your financial well-being. Knowing what is in your credit report is the first step. Depending on where you obtain your credit report, you may notice that the information is presented differently or in varying formats.

Breaking Down a Credit Report

Credit reports typically divide information into four sections:

  1. Personal Information: Firstly, the top of the report contains personal information to identify you. This includes your name (and any variations of your name that you use), address(es), date of birth, spouse or co-applicant, and phone numbers.
  2. Accounts: Secondly, this section represents the bulk of most reports and includes detailed information on your past and present credit accounts. These accounts include both revolving credit, such as credit cards and lines of credit, and installment credit, such as auto loans, personal loans, and mortgages. It indicates when you opened the account and its current status, such as whether it is open or closed. Additionally, it shows whether you have kept up with your payments on that account or fallen behind.
  3. Public Records: Thirdly, this section includes public records regarding any bankruptcies, legal judgments, or tax liens. It does not include non-financial matters, such as arrests.
  4. Credit Inquiries: Lastly, the bottom of the report lists all of the entities that have recently asked to see your credit report. These fall into two categories: hard inquiries, which happen when you apply for credit, and soft inquiries, which occur when a potential creditor requests your file without your knowledge for marketing purposes. Hard inquiries can negatively impact your credit score, although it is usually brief.

How Long Does Information Remain on Your Credit Report?

Generally, information on your credit report remains for at least seven years, after which it falls off. One exception is Chapter 7 bankruptcy, which can remain for up to 10 years.

Who Can See Your Credit Report?

Under the Fair Credit Reporting Act, businesses and other parties need a legally permissible reason to request your credit report. That list can include lenders, insurance companies, employers, landlords, and government agencies. Employers must get your written permission to access your report.

Final Thoughts

Understanding your credit report is vital for maintaining your financial health. Regularly checking your report ensures you stay informed about your credit status and can address any inaccuracies. Remember, the first step to financial well-being is knowing what’s on your credit report.

For more information on credit reports and to get your free annual report, visit the websites of Equifax, Experian, and TransUnion.