A credit report is a full account of a person’s credit history gathered by credit bureaus from sources such as creditors, financial institutions, credit card companies, and public records. Building credit and maintaining a good credit score—which is a numerical expression of your credit history—can positively impact your financial health and future borrowing ability.
What's on a Credit Report?
Credit is an essential part of the American economy and, as such, your creditworthiness is quantified and reviewed throughout your adult life in a multitude of scenarios. Banks, lenders, credit card companies, public utilities, and even potential landlords and employers may ask to review your credit, so it’s imperative that you monitor your credit reports and dispute any errors with the appropriate credit bureau. Federal law allows all citizens to request a free credit report from each of the three main credit bureaus, Equifax, Experian, and TransUnion, once every twelve months through annualcreditreport.com.
Since each credit bureau has different means of obtaining and presenting credit information on consumers, your credit reports may differ from one another or present items in their own particular format. Notwithstanding, all three reports will contain the same basic elements, including your personal information, credit score, account histories, public records, and credit inquiries. Credit reports may also include such particulars as your borrowing history, loan amounts, credit limits for each credit card under your name, the frequency of your timely payments as well as late or missed payments, and public information such as bankruptcies or liens.
The 4 Most Important Things to Check on Your Credit Report
Once you request and receive your reports, proceed to comb through each document highlighting any inaccuracies that could adversely affect your credit. Although every aspect is relevant, be on the lookout for these five common types of errors:
1. Errors in Your Identifying Information
Review your personal information, making sure your name, date of birth, social security number, phone number, current and previous addresses, and employment history are correct. There have been instances in which files have been mixed and an individual’s information has been confused with that of another person with a similar name or social security number. Also, be on the lookout for personal details or accounts that are not your own, as that may also be an indicator of identity theft.
2. Incorrect Accounts Information
The accounts section on your credit report should list all your credit cards, loans, and collection accounts with the name of the creditor, the date on which the account was opened, its status, type, loan amount or credit limit. Pay special attention to this section, making sure there are no accounts listed more than once under different names or with different creditors, and that no closed accounts are listed as open or current accounts indicate late payments or delinquencies. Be aware that delinquencies can only be listed on your credit report for seven years and bankruptcies for ten years, which means you can ask to have them removed after that period.
3. Data Management Errors
If there are any accounts you don’t recognize or collections listed for bills you already paid or never had, it could either be a result of a data management error on the part of a debt collection agency or an indication that your personal information has been compromised and you are being defrauded by an identity thief.
If you detect a suspicious account and fear you have been a victim of identity theft, first notify the bank or creditor associated with the account and then contact one of the three main bureaus to request a fraud alert on your credit report. The Federal Trade Commission also offers valuable information on identity theft recovery as well as a dedicated webpage where you can report the fraud and create a personal recovery plan.
4. Unauthorized Hard Credit Inquiries
When you apply for credit with a credit card company, lender or financial institution, they are entitled to carry out a hard inquiry into your credit. A hard pull on your credit can remain on your report for up to two years and lower your score, as numerous loan or credit card requests can make you seem unqualified and lead prospective creditors to suspect you are a high-risk borrower.
Hard credit inquiries don’t lower your credit score by much and you can easily offset the negative mark by having a balanced number accounts in good standing and a lengthy credit history. However, if there are over six hard inquiries listed on your credit report and you have not requested a line of credit or other forms of financing, follow the steps mentioned above to ensure your identity has not been compromised.
What to Do if There's a Mistake in Your Report
The federal Fair Credit Reporting Act (FCRA), which encourages the accuracy, fairness, and privacy of the information held by consumer reporting agencies, requires all three national credit bureaus to provide consumers a free annual copy of their credit report. The FCRA also requires these credit reporting companies to correct any inaccurate information on your credit report, which can be done by contacting the particular bureau in writing or completing an online dispute form on the company’s website.
The FTC provides a sample letter for those who which to dispute any items on their credit report in writing. The letter should invariably contain the person’s contact information including their name and address, as well as the items they want to have corrected or eliminated and any copies of documents that can back their claims, such as records of payment or court documents. Consumers can also choose to contact the provider of the inaccurate information directly, in which case they should list the same pieces of information, including copies of any supporting documentation.
Does Checking Your Credit Hurt Your Score?
Soft credit inquiries or “soft pulls” take place when your credit is reviewed by either yourself, another company or a prospective employer for reasons other than evaluating your creditworthiness, such as for a background check. Soft credit pulls should have no effect on your credit, which means you can monitor your credit scores and reports as often as necessary without negative consequences.
Before applying for credit or financing, review your free annual credit report or consider enrolling in a credit reporting service that allows you to view summary reports and sample scores. If you are worried about the potentially negative effects of excessive hard inquiries into your credit, you may also benefit from online services that offer credit score estimator tools to help you identify the financing options you are most likely to get approved for. Keep in mind that credit report summaries and vantage scores may differ from those used by lenders and credit card companies, so consider any derivative credit information as educational material and seek further resources that could help you make better-informed decisions about your credit and finances.