What is a Credit Report? How Issuers Analyze Your Credit History

There are three major credit reporting agencies — sometimes called credit bureaus — in the United States. The role of these private companies is to compile information about your financial accounts into personalized reports.

Many businesses, particularly lenders, creditors, and utility providers, depend on these reports to understand how you have been borrowing and repaying money. It gives them valuable insight, enabling them to make appropriate lending and contractual decisions.

A credit report is a summary of a person’s borrowing history provided by a credit bureau. It helps lenders, creditors, and other entities measure how responsible someone has been repaying their debts.

If, like me, you want as many great financial opportunities open to you as possible, making sure that your credit reports reflect only positive and accurate information will be your goal. For this reason, you need to know what is on your credit reports and why, as well as what credit card issuers and other businesses look for on your reports.

All of the information on your credit report comes from data furnishers that include banks, credit unions, credit card issuers, mortgage lenders, finance companies, and collection agencies. If you have filed for bankruptcy, the court will also supply that information to the credit bureaus. 

If you have never reviewed your credit report before, chances are it will be confusing at first. 

The three credit bureaus are TransUnion, Experian, and Equifax, and though each has its own formatting, they all include four distinct sections: 

Personal Information

Your personal data is housed here. It begins with your full name as well as any past names or different spellings of your name.

In addition, it will typically show your:

• Current and previous mailing addresses
• Year of birth
• Social Security number
• Telephone number
• Current and previous employers

It will also show your spouse or co-applicants if any are attached to your accounts.

Credit Accounts 

This is the most important section of a credit report because it contains the details of all of your accounts.

Your report will show credit accounts, such as installment loans, credit cards, and lines of credit.

Each credit account on your report will include:

• Name of the lender, account number, and the account open date. 
• If the account is individually held or is a joint account. 
• If the account is open or closed. 
• For loans, it will show the original loan amount and the installment payment.
• For credit cards and lines of credit, it will show the credit limit and your current balance. 
• Current or past-due status. If you were late on any accounts in the past seven years, it will show the date as well as the past-due amount. 
• Payment history. On-time payments will be noted as such. If your account is past due, it will show the number of days, from 30 to 180. 
• Charge-off. If your account is seriously delinquent, the creditor may consider it uncollectible and will note it as a “charge off.” 

Your report will also include collections. Original creditors typically sell charged-off accounts to third-party collection agencies. At that stage, the collector owns the account and will usually report it to the credit bureaus.

Collections you will see include:

• Name of the collection agency.
• How to reach the collection agency. 
• Original creditor.
• The account balance it purchased. 
• The date the collection agency acquired the account. 
• New account number.

There is a huge amount of information in this section, so I recommend focusing on the above areas.

Inquiries

When you apply for a credit product, the issuer will notify the credit bureaus, and it will show up on your credit reports as a hard inquiry. 

Soft credit inquiries will also appear on your report, but they are not generated by you. Companies with a legitimate business purpose are free to check your credit report without your permission to see if you would be appropriate for one of their products.

Both types of injuries can stay on your credit report for a total of two years.

Public Records

In the past, many types of public records could show up on your credit report. For example, if you were sued for a debt, you might see a judgment against you, or if you owe money to the IRS, you may see a tax lien. 

Now, though, only bankruptcies can be reported to your file. If you took advantage of this type of legal debt relief, you will find it in the public records section. You will also see an update to your credit accounts. They will show as “Included in Bankruptcy” with a $0.00 balance owed. 

The Role of Credit Bureaus

Always remember that credit reports are not designed for the consumer. They’re for businesses that have familiarity with what is listed, so they can go right to the areas that are most important to them. 

Therefore, if a credit card company wants to identify potential cardholders who have not been late on any payments within the past two years, the credit history that appears on your credit report will help them. 

Although data furnishers aren’t legally required to participate in the credit reporting system, most credit issuers and lenders do. Some collection agencies only report to one or two credit bureaus, though, because data furnishers also have to pay to submit information. 

You are entitled to get a free credit report each year from each credit bureau. To order, go to the bureau’s websites:

• Experian
• Equifax 
• TransUnion 

Once there, you will fill out a drop-down menu and supply your personal identification information. Each credit bureau offers additional and optional fee-based services, such as credit monitoring. 

However, AnnualCreditReport.com is authorized by the federal government to provide you with free weekly online credit reports. You can order them from the website but also by phone or mail. 

All of the information on your credit report (except your personal identification) will be factored into your credit scores. And that’ll impact your financial future in a number of ways.

Credit Scores Reflect Credit Report Information

Credit scoring models such as those developed by FICO and VantageScore take the data from your file and input it into special algorithms. These three-digit numbers range from 300 to 850, with higher numbers being preferable because they predict less lending risk. 

When the information on your credit reports is updated, your credit scores will also change. 

Each of the credit scoring companies has developed its own algorithm, but in general, you can ensure that your scores are high by making sure that your credit reports indicate a long history of using credit products responsibly:

• A steady stream of on-time payments.
• No or very low revolving debt compared to credit limits.  
• A variety of accounts on your file, such as different credit cards and loans. 
• Minimal hard credit inquiries. Soft credit inquiries are not included in scores. 

Because the information on credit reports is food for credit scores, you also want to be sure that the information is healthy. 

Sometimes mistakes and evidence of fraud or identity theft can show up on your credit report. For example, you may spot a loan that you never opened and is now delinquent, or you paid off a collection account, but it still shows as an amount owed. Whatever the case, you certainly do not want to have such information factored into your credit scores and lowering those numbers.

Negative information can only stay on your credit report for a limited amount of time: 

• Seven years for late payments, charge-offs, paid or unpaid collection accounts (from original delinquency date), Chapter 13 bankruptcy. 
• Ten years for Chapter 7 bankruptcy.  

These negative notations should naturally fall off your report after those time frames. 

If you do spot evidence of mistakes, fraud, or accounts that no longer should appear on your reports, contact the credit bureaus and file a dispute. The bureau will conduct an investigation, which typically takes up to 30 days. During that time, it will not report that information to your credit report. If the bureau finds that you are correct, the information will be permanently removed from your report. 

Lenders Assess Risk Before Approval

Both credit reports and credit scores are instrumental in the lending process. Credit and loan issuers can review your reports and get a detailed history of how you have been managing your accounts. They can also check your scores for an instant read on what kind of credit risk you are. 

If you are in the market for a credit card, it is especially important to keep your credit in good shape. Credit cards with excellent terms, perks, and benefits will likely be out of reach if your credit scores are low. 

Setting Interest Rates and Credit Limits

What is on your credit report and the credit scores that correspond with that information has a direct connection to interest rates and credit limits that a credit card issuer will offer: 

• When your credit history and scores are good, the lender may offer you lower interest rates. That will make the cost of borrowing less expensive, both with monthly payments and in total interest paid. 
• In the event that you have poor credit, the interest rate that the lender may offer could be very high, resulting in expensive financing. Your application for credit may even be denied, which can put you in a bad position if you need the loan or credit product. 
• Credit card issuers will often check your credit history to see how you have been handling past and present credit lines. If you’ve managed large credit limits before, odds are, you will do so again, so you may be eligible for higher credit limits.

On the flip side, if your credit reports show that you have an overabundance of revolving balances and low credit scores, chances are the credit limits that you are offered on new cards will be low. 

The great news is that you can change the future! All the information on your credit report comes from the past.

Make Timely Payments

Pay on time. For every account that appears on your credit report, make sure you pay by or before the due date.

Although paying a few days late will probably result in a fee, if you skip an entire payment cycle, you will be 30-days past due, resulting in a ding to your credit. 

Sign up for auto-pay. One of the easiest ways to make sure that payments are in on time is to set up automatic payments with your bank. It’s free, and all you will have to do is monitor your account. 

Contact your credit issuers if you are in trouble. If you fall on hard times and cannot make a payment when you should, immediately contact the credit issuer and explain the situation. You may be able to arrange a hardship program that allows you to send a smaller payment or even miss payments for a fixed amount of time without them noting the account as delinquent. 

Reduce Your Debt

Expand your credit utilization ratio. Owing a lot of money on your credit cards compared to the credit limit, both per account and in aggregate, can have a negative impact on your credit.

If you have maxed-out cards, you can quickly change your credit rating by paying them down. Owing no money on revolving credit products is best, but in general, it is a good idea to have at least 70% of your credit lines open to you. 

Avoid opening new accounts while managing debt. As you are focusing on deleting the amount that you currently owe, suspend charging and try not to open any new accounts. This will keep you on track to lower your debt-to-credit-utilization ratio. 

What you do from this point forward will have a direct effect on your credit reports and your credit scores. 

Dispute Errors

In the event that you do spot inaccuracies or evidence of fraud on your report, gather your documentation before you start the dispute process. 

To submit a dispute, contact the credit bureau listing the inaccurate information:

Online

• Equifax: www.equifax.com/personal/credit-report-services/credit-dispute/
• Experian: www.experian.com/acrdispute
• TransUnion: https://dispute.transunion.com

Mail

• Equifax, P.O. Box 740256, Atlanta, GA 30374-0256
• Experian, P.O. Box 9701, Allen, TX 75013
• TransUnion, P.O. Box 2000, Chester, PA 19016

Prepare to provide proof of your identity, including:

• Your full name
• Social Security number
• Date of birth
• Current address and addresses for the past two years
• Email address
• Copy of a government-issued identification card, such as a driver’s license or passport
• Copy of a utility bill, bank statement, or insurance statement

List the inaccurate items with account names and numbers, as well as the specific reason it is incorrect.

Documentation can include: 

• Police reports or an FTC Identity Theft Report
• Bankruptcy schedules indicating accounts that were included or discharged
• Correspondence from creditors that prove you’re in the right
• Canceled checks indicating payments

You can do everything online, but the more evidence you can supply the credit bureau with that supports your case, the better.

So are credit reports complicated? Not really. Once you’ve seen one, the following reports will be far easier to read and understand. And they serve an important purpose. 

Credit reports show a detailed history of how you have managed credit products and debt in the past. Credit issuers use that information to determine acceptance and set terms. 

Getting high marks shouldn’t be too difficult if you stay organized and do your homework. All you need to do is make timely payments on your bills and keep track of what is being reported about you! Then, if anything does go wrong, you’ll be able to set it right.