Credit Reports: What they are and how they help you

April 2004

What is a credit report?

A credit report is a summary of your credit history. Credit reports help potential creditors determine whether or not to extend credit to you — and, if so, how much credit to extend. Companies report each instance in which you apply or are approved for credit. Got a cell phone? It's in your credit record. Have a second mortgage? That's in there, too. Did the car salesman run a quick credit check during last weekend's test drive? It shows up in your file. This and similar information is reported back to the three major national credit bureaus, who then aggregate it into your credit record.

 

 

What types of information are included in my credit report?

Your credit report includes information from a variety of sources:

 

• Personal identifying information, such as your name, current and previous addresses, phone number, Social Security number (and variations on it), date of birth, previous employers, and your current employer.
• Account information, including the date the account was opened, the credit limit and/or loan amount, account balance, monthly payments, and payment patterns for the past several years.
• Government information, including federal bankruptcy records and state and county records of tax liens and monetary judgments.
• Inquiries, including the names of those who have obtained a copy of your credit report.
• Statements of dispute, which allow you and your creditors to report the factual history of an account.

 

If I order a copy of my credit report, will it hurt my credit?

Absolutely not. You have the right to examine your credit report without affecting your credit or your credit score. When an individual requests his or her own credit report, the process is considered a "consumer pull" and has no impact on the individual's credit status. Only when you ask a potential creditor to inquire about your credit can it affect your score.

 

 

What is a 3-in-1 credit report?

A 3-in-1 credit report is a single report that contains your credit file data from the three major credit reporting agencies, or CRAs — TransUnion, Experian, and Equifax. The cost of a 3-in-1 report is necessarily higher than the cost of a single-bureau credit report. Many lenders make their decisions based on 3-in-1 credit reports rather than using single-bureau reports.

 

 

Should I consider purchasing a 3-in-1 credit report rather than a single-bureau report?

In most cases, but not always. The three CRAs operate independently of each other and don't necessarily share information. As a result, information that appears on one report may not appear on another. When creditors report information to the CRAs, they can choose which bureau or bureaus they will contact; some report only to one bureau, while others report to all three. 3-in-1 reports are the best tool for identifying discrepancies, errors, and fraudulent activity that may affect your credit standing.

 

If, when you order your credit report for the first time, you suspect that you may be a victim of fraud related to identity theft, or if you intend to apply for a major loan within three to six months, it's prudent to examine the contents of the credit file being held in your name by each of the three credit bureaus. A 3-in-1 credit report should array this information in an easy to read, side-by-side comparison.

 

What is a credit score?

Credit scores — sometimes referred to as FICO scores (FICO being an acronym for Fair Isaac and Company) — are designed to distill the various information in your credit report into a single number indicating your overall creditworthiness. Credit scores give lenders a quick predictive estimate of the risk involved in giving you a loan.

 

 

What factors affect my credit score?

Five characteristics — given below in order of importance — determine your credit score:

 

• Past delinquencies. Lenders assume that people who have failed to make payments in the past will tend to do so in the future.
• Relative credit utilization. Those who are near their credit limits are considered riskier than those who use credit more judiciously.
• Timespan covered by the credit file. The longer a consumer has maintained a credit file, the less risky that consumer is considered to be.
• Credit requests. More numerous requests within a short period of time tend to indicate an elevated risk to the would-be lender.
• Credit portfolio. This criterion (also referred to as "mix of credit") is an excellent indication of credit risk. A person who maintains only a secured credit card is generally considered a greater risk than someone with a combination of installment and revolving loans.

 

How do credit reports help in cases of possible identity theft or fraudulent account takeover?

They're absolutely essential. In most cases, fraudulent activity can be detected by reviewing the accounts, inquiries, and addresses that appear on your credit reports.

 

• Accounts. If your credit report shows a recently opened account that you don't recognize, that may indicate that a criminal has used your identity to obtain a line of credit.
• Inquiries. Review all inquiries on your credit report in the section entitled "Requests Viewed by Others." If you don't recognize the credit grantor seeking access to your report, that may indicate fraudulent activity.
• Addresses. Review the addresses appearing on your credit report. If you discover an address where you have never actually lived, that address may have been used on a fraudulent credit application.

 

Am I entitled to a free copy of my credit report?

You will be soon. Under a provision of the Fair and Accurate Credit Transactions Act (FACTA), a recently enacted law amending the Fair Credit Reporting Act (FCRA), nationwide credit reporting agencies will be required to provide to consumers, upon request, a free copy of their credit reports within 15 days of a request by phone, postal mail, or a designated web site. FACTA directs the FTC to establish a central source and standard form for these requests to enable consumers to order them from all three CRAs at once. The FTC has proposed a rule making this central source — and the free credit reports that it will provide — available in a four-phase cumulative rollout over a nine-month period. The rollout would proceed by region, from west to east, beginning 1 December 2004 and completed by 1 September 2005.

 

In addition, you are currently entitled to a free credit report if you believe you may be a victim of identity theft; if you have been denied credit in the past 60 days; if you receive welfare benefits; or if you are unemployed.