- A credit report documents your credit history, which is turned into your credit score.
- The three major credit bureaus — Equifax, Experian, and Transunion — create your credit report.
- Lenders, insurance companies, landlords, and even employers can use your credit report to make decisions.
Introduction to credit reports
Definition of a credit report
Credit reports are often likened to your high school transcript. It's a pretty good comparison. Credit reports document all your lines of credit and how well you manage them, like grades for individual classes. Credit scoring models like FICO and VantageScore crunch that information into your credit score, your overall financial GPA.
And, like our transcripts, we don't get to control what gets reported, nor do we get to opt out of being graded. Many aspects of our lives are tracked by organizations; where we go, what we buy, and what we search online. The same goes for our credit. That said, you have a modicum of control over your credit, and the Fair Credit Reporting Act affords you certain rights that you can use to boost your credit score. Here's everything you need to know.
Definition of a credit report
A credit report documents your credit-related activity and history collected by the three major credit bureaus: Experian, Equifax, and TransUnion. Scoring models such as FICO or VantageScore turn the information on your credit report into a credit score. The algorithms they use are kept hidden from consumers, but we have a general idea of how FICO and VantageScore calculate your credit score using your credit history.
Components of a credit report
The credit reports from each credit bureau have some slight variations in structure, but broadly speaking, they break down into four primary sections:
- Personal information
- Accounts
- Inquiries
- Public information
Personal information
Personal information is the most self-explanatory of the sections. It contains details such as:
- Full name
- Date of birth
- Current and previous addresses
- Social Security number
You'll want to ensure this information is correct, even if rectifying it keeps your credit score the same. Inaccuracies could be a sign of identity theft or a mixed credit file, where information from one credit account makes it onto another.
Accounts
The accounts section makes up the bulk of your credit report. It shows information relating to all your open credit accounts, including installment loans, mortgages, and revolving credit, as well as closed accounts from up to 10 years ago.
This section is also where credit-scoring models derive most of the information used to calculate your credit scores.
Here, you'll find information such as:
- The date an account was opened and (if applicable) closed
- Monthly balances
- Credit limit
- Original loan amount
- Account standings (good standing, delinquencies, etc.)
If an inaccuracy is hurting your credit score, it will either be here or in the inquiries section. You may have a misreported credit limit or delinquency still on your credit report, even if it's over seven years old. In the worst case scenario, you might see a credit line you didn't take out, which you will want to dispute immediately.
Inquiries
This section is folded into your credit score as "new accounts" under FICO and "recent credit behavior and inquiries" for VantageScore. It will show all the times your credit report has been pulled for new credit lines or any other purpose. This section breaks down into two additional sections: hard inquiries and soft inquiries.
Hard inquiries: These appear on your credit report when you apply for a new line of credit and other credit-related requests like an increase in your credit limit. One hard inquiry will hurt your credit score by a few points, but the effect will compound exponentially with each additional hard inquiry within a short period of time. A creditor might wonder why you're borrowing so much at once and if you're good for it. A hard inquiry will no longer factor into your credit score calculations after one year. They will fall off entirely after two years.
Soft inquiries: Soft inquiries do not affect your credit score, and they only show up on the credit reports you request for yourself. Soft inquiries include any credit reports you pulled to view your credit. Soft inquiries will also trigger whenever a creditor pulls your credit for promotional inquiries, or a landlord pulls a credit report for rental properties.
Collections and public records
This section shows bankruptcies and debts that have gone to collections.
Bankruptcies: If you've had to file for bankruptcy, that will severely damage your credit score. These will stay on your credit report for 10 years before they fall off.
Collections: This section shows your debts that have gone to collections, meaning your debt payment was late to the point where your creditor sent it to a collections agency. Creditors send debts to collections when your payment is overdue by 90 days.
Your credit report may also show sections for tax liens and monetary judgments, but credit reports no longer show this information for new liens or monetary judgments. That said, if you have been involved in a tax lien or a monetary judgment, that is still public information that lenders will have access to.
How credit reports affect you
Your credit report can be pulled for numerous reasons now, from buying a home and renting an apartment to job applications and insurance.
A credit report is an important financial document. Potential lenders use your credit report to assess your risk to them if they do business with you. It will often determine the amount of credit or interest rate you will be eligible for. Potential employers that pull credit may use it to assess financial stability and responsibility.
Who can see your credit report?
With all the information your credit report contains, it's one of the best tools for third parties to gauge how well you manage your finances. Creditors and other third parties use your credit report, which they buy from the credit bureaus, and credit scores to assess you as a potential customer.
However, the Fair Credit Reporting Act limits who can see your credit report. Of course, you, the consumer, get to see your own report.
Government agencies also have access to your credit reports if they have a legitimate reason to see them. For example, they might pull your credit report to look for hidden income if you apply for public assistance. They might also look at your credit report to determine how much you need to pay for child support. Additionally, a credit bureau will provide a credit report if a court subpoenas it.
Several other organizations can view your credit report, but they must have a reason to view your credit report — what the FCRA calls a permissible purpose. "You can't just check someone's credit because you want to," says Margaret Poe, a manager of consumer credit education at TransUnion.
Permissible purposes usually fall within the realms of credit, housing rentals, employment, and insurance underwriting.
Creditors: Creditors view your credit report to assess your risk level as a borrower. If you've had problems paying back your loans promptly and consistently, expect higher rates on loans or an outright rejection. Suppose you fall into deep delinquency with your creditor – the collections agency that they hire to get you to repay your loans will also have access to your credit report.
Landlords: Many landlords will factor your credit score into their rental decision. Some may even pull your credit report to see how responsibly you make payments. This credit pull is considered a soft inquiry since you're not applying for new credit.
Insurance companies: Insurance companies use your credit report in their underwriting and rating process, determining whether to insure you and how much they will charge you for premiums. They believe that financial stability correlates with losses, so if your credit report shows significant negative information, they may charge you higher premiums.
Employers: In certain states, employers can pull your credit report with your consent. They will not be able to see your name, Social Security number, medical bills, income, or account numbers. They also can't access your actual credit score. However, they will have access to everything else.
The practice is controversial given the credit gap that exists across race and age groups. However, there are certain industries, particularly in financial services and law enforcement, where credit checks are mandatory. For example, the Federal Bureau of Prisons conducts a credit check because corrections officers with significant outstanding debts may be more susceptible to bribes.
How to obtain your credit report
It's a good idea to keep tabs on your credit reports throughout the year. This practice will give you a good idea of where you stand credit-wise but will also protect your credit from potential identity thieves.
The FCRA gives consumers one free credit report from the three major credit bureaus up to once a week. You can only access these reports through AnnualCreditReport.com.
You can gain additional credit reports in several instances. Suppose you've been denied credit or experienced any other adverse action due to your credit report. In that case, the FCRA allows you to view your credit report from the bureau used to reject your application.
You are also entitled to a credit report from each bureau when you put a fraud alert on your credit, which compels lenders to confirm the identity of the person requesting credit. These expire after a year, at which point you can request another alert and get those credit reports.
Aside from the free reports, you can also sign up for third-party credit monitoring services that will notify you of any changes to your credit report, so you can catch any potential identity theft immediately. The best credit monitoring services have added benefits, such as additional identity theft services like password protection.
Understanding your credit score
How your credit score is calculated
Your credit score is a numerical representation of your creditworthiness, and there are two main models for calculating it:
| FICO | VantageScore |
Payment history (35%) Credit balance (30%) Length of credit history (15%) New credit (10%) Mix of credit accounts (10%) | Payment history (40%) Length & type of credit (21%) Percent of credit used (20%) Total debt/balances (11%) Recent credit behavior and inquiries (5%) Available credit (3%) |
Credit reports, on the other hand, are a more complete picture of your credit history, listing all your opened and closed accounts, credit inquiries, and more.
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How to improve your credit report
Dispute errors on your credit report
Discrepancies and inaccuracies on your credit report aren't unheard of. In fact, they're surprisingly common. A Consumer Report survey found that 34% of consumers identified an error on one of their credit reports. While some inaccuracies are as innocuous as a typo in your name, some might hurt your credit score. These harmful errors may also be a sign of identity theft.
The process of disputing an inaccuracy on your credit report is simple. When you request a credit report, you should review your personal information for discrepancies, such as a misspelled or wrong name or address. "Make sure nothing is amiss. That can be a red flag or a sign of identity theft," Poe says.
Once you get to your account information, Poe says that the payment data is generally very accurate. "I wouldn't say that you need to go through with a ledger of your actual credit card and compare number to number," she says. Identity theft should actually be obvious on your credit report. "If you see an account that you didn't create, that should jump out to you."
Managing credit accounts
It's important to manage your credit accounts so that you can pay everything on time every month. Your credit report is a history of how you pay your bills and pay back your creditors, so create a budget that includes all of your bills, pay down debt, and don't take on more credit than you can afford.
Strategies for building credit
If you want to build credit, start slow and get a low-limit or secured credit card and get used to making monthly on time payments. If you are paying rent, consider a rent reporting company so that those on-time payments are added to your credit report. Also consider services like Experian Boost, an optional program that allows consumers to build positive credit history through payments on everyday bills.
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Credit report FAQs
A credit report provides a history of how you handle credit and pay back your debts, while a credit score is a numerical representation of your credit risk to a lender based on the information in your credit report.
A hard inquiry stays on your credit report for two years, but credit score calculations exclude it after a year. Creditors pull a hard inquiry when you apply for new credit, be it a new credit card, personal loan, or mortgage.
Late payments stay on your credit report for seven years from the day your account first fell into delinquency, also known as the original delinquency date. Bankruptcies, particularly Chapter 7 and 11 bankruptcies, stay on your credit report for 10 years.
Check your credit report at least once a year to ensure accuracy and to detect any signs of fraud or identity theft early.
Freezing your credit report prevents lenders you are not already associated with from viewing your credit report, preventing any potential identity thieves from opening lines of credit in your name. You need to go to each credit bureau individually, either online, on the phone, or by mail.
A fraud alert is a free service provided by credit bureaus that compels creditors to take reasonable steps to confirm your identity before extending you a line of credit, usually via phone call. You can place a fraud alert on your credit report by contacting one of the three major credit bureaus. That bureau must then inform the other two of the fraud alert.
You cannot remove a correctly reported late payment from your credit report. That said, your creditor can. You can write a goodwill adjustment letter to your creditor to ask them to forgive a late payment. It is ultimately up to your creditor to decide whether they'll forgive you or not, but if your payment record has previously been flawless, you stand a better chance of getting that adjustment.
