What is a Credit Report: A credit report contains the details of your financial life; every account you’ve opened in the past, agreements, and contracts that in some way involve making payments, all are shown on your credit report. The details include chronological information about each account, such as initiation date, and termination date, payment history, loan amounts, and missed and late payments. Your credit report also will include references to public records that are important to the state of your finances, i.e. bankruptcies, actions taken because of unpaid bills, and foreclosures.
And then of course your credit report contains personal information such as social security number, name, address, employer, and birth date, -used to identify you. The final important item on your credit report is any recent credit inquiries. The names of anyone who obtained your credit report in the last two years will be included.
Credit reports were originally intended to be used by lending institutions such as banks, mortgage companies, and credit card companies. Nowadays, your credit report may be used by insurance companies, landlords, potential employers, and others. Your credit report establishes your financial reputation of sorts. Do not underestimate the importance of your credit report. Remember, people who are making credit and employment decisions usually will not know you personally. They make those decisions based on the information available to them.
While a credit report is vital in getting loan approval and other business transactions, about 10% of adults don’t have a credit score. Some people think that having a credit card means you’ll have a credit score. On the contrary, minimal credit usage isn’t enough to build a credit score. You need to establish a credit history by having at least one credit account for a minimum of six months and at least one account reported to credit bureaus in the past six months.
Given the expanded use of credit reports, it’s important to note that information disputes can be recorded in your credit report. So if you believe the information in your report is incorrect, you have the right to dispute that information and have your side of the story included in your credit report. Federal law forces the major credit bureaus to investigate claims of incorrect information they are reporting within 30 days of receiving written notice. Do remember, that you have the right by law to review and dispute items on your credit report that you disagree with or feel are wrong. Please see our learning center article on Disputing Inaccurate Credit Information for more details.
As a general rule, your credit history information stays in your credit report for seven years. Public records like bankruptcy may remain on your credit report for 10 years.
Do remember, you are entitled to receive one free credit report every year from each of the three major credit reporting companies -Equifax, Experian, and TransUnion. Your free credit report can be obtained through [www.consumer.ftc.gov/articles/0155-free-credit-reports] or [https://www.consumerfinance.gov/learnmore/ ]by directly contacting the companies by mail or phone.
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Who Has Access to Your Credit Report
The people and institutions you do business with, for example, lenders, insurance companies, landlords, government agencies, employers, and any company with whom you apply for credit or have a legitimate business transaction with, all have access to your credit report. The FCRA or Fair Credit Reporting Act specifies who can request a copy of your credit report and for what reasons they may request it. The FCRA requires some of these groups, such as employers, to have your written consent before requesting your credit report. Most other groups are allowed to access your credit report without your permission. Note that your consent is not required for “soft” credit inquiries in connection with pre-approved credit offers. In these cases the lenders don’t actually see your credit report, but rather, some of your information is sold to them by the credit reporting companies for marketing purposes.
Businesses are not required to obtain your permission to access your credit report. This can be a problem when they do what is known as a “hard inquiry”. Hard inquiries can lower your credit score since they are interpreted as an attempt by you to obtain more credit. Many consumer complaints have resulted because of these credit checks. For example, car rental companies will do a “hard inquiry” of your credit if you attempt to rent a car with a bank debit card. That can lower your overall credit score. While the impact of hard inquiries is generally short-lived, you do not want multiple hard inquiries on your credit report in a short period of time.
Employers normally get a different version of your credit report then do institutions that are considering granting credit. Employers are primarily interested in how you manage your payment responsibilities and don’t have a need to see many of the other items on a credit report. When lending institutions access your report for the purpose of a credit check, this is always recorded. Your credit report should have the names of those who requested your report over the past two years.
Some institutions also check your credit report once you have already obtained a loan, for example, to make sure you still meet their credit standards.
Since credit reporting mistakes do happen, and incorrect information can find its way onto credit reports, it’s a good idea to check your report annually. Please see our learning center article Get a Free Copy of Your Credit Report for more detail.
Get a Free Copy of Your Credit Report
It’s important to make sure the information on your credit report is accurate. This is especially important if you plan to apply for a new loan or credit card. Inaccurate information could result in credit being denied or you being given a higher rate of interest. If anything doesn’t seem accurate on your credit report, make sure you dispute it as soon as possible to have your information accurate again.
Equifax, Experian, and Transunion are three major credit agencies that store, collect, and sell the details of your credit history based upon the information they receive from smaller regional agencies or from credit card companies and lenders. With each of the three major credit agencies, you’re entitled to receive one free copy of your credit report every 12 months. Experian also allows you a free online copy of your report. Frankly, the fastest way to view your annual free credit report is online; filling out the paperwork, and sending for, then receiving one’s credit report via postal mail can take up to a month. Your free credit report can be obtained through [www.consumer.ftc.gov/articles/0155-free-credit-reports] or by directly contacting the companies by mail or phone.
How to remove hard inquiries from credit report
The idea of removing hard inquiries from your credit report to improve your credit score may sound appealing. You can dispute hard inquiries from your credit report by working with your creditors and the credit reporting agencies. But disputing a genuine hard inquiry on your credit report will likely not result in any change to your scores.
You can, however, dispute ones that are a result of fraud. This can happen when an identity thief uses your Social Security number and other personally identifiable information to open a new account in your name. Unless hard inquiries come from identity theft, they’ll remain on your credit report. Otherwise, they’ll fall off automatically after two years.
Monitor your Credit – It’s Important
Simply put, effective and strategic credit monitoring prevents one of the most popular crimes in the world today: identity theft. Identity theft is a fast-growing crime, largely because so many people are making it easy for thieves to get their hands on personal information. Identity theft doesn’t only happen when your credit card or identification card gets stolen, but also when someone gains knowledge of your personal information such as date of birth, Social Security number, and even your name. People can use this information to open credit card accounts, obtain loans, or drain bank accounts.
Read: Credit Card Meaning
To protect yourself against identity theft, you should consider storing all your personal information in a very safe place. Do shred any documents with personal information before disposing of them. Also, never give your personal information to anyone, unless you are sure they are a legitimate service or company. Identity theft is a very good reason to check your credit report often to make sure you haven’t been a victim. You can also enroll in a credit monitoring service, which will alert you to new changes in your existing credit accounts and very importantly will alert you to new accounts opened with your personal information.
The other primary reason for monitoring your credit is to be aware of any inaccurate information that appears on your report and disputes it quickly. Negative information will be considered by lenders and credit card companies and can lower your credit score. A lower credit score can mean you will pay higher interest rates or possibly have your application for a credit card, loan, or mortgage completely rejected. Federal law allows you to receive a free copy of your credit report from each of the three major credit reporting companies.
How To Improve Your Credit Score
Despite elaborate claims made by Internet, television, and radio advertising, –lectures about financial responsibility are not going to solve your credit problems. Making your payments on time is the best way to improve your credit score, –it’s not only the right thing to do, it will also save your credit in the long run.
Creditors look at accountability for payments more than anything to determine whether they should give you credit or not. Credit history covers the past 7 years, but you have to constantly make payments on time to keep your credit score from getting lower. Bankruptcy stays in your credit report for 10 years. There are a lot of companies out there claiming to fix your credit report in an instant. Be careful because many of these companies are scams and don’t have your best interest at heart. The best way is to clean up your credit report yourself. Be honest with the people you do business with and work out payment plans so you won’t delay a due payment.
The following three-step program is basic credit information that you can apply to your current credit situation, –it’s not designed to be the intensive debt rehabilitation program offered for a fee. And that’s probably a good thing, as some of those services end up driving their customers further into debt. Follow the steps listed below to put yourself on the road to successful credit management. Also, even if you have good credit now, it’s easy to fall into bad habits; reviewing and sticking to the advice listed here can keep you out of financial trouble in the long run.
Step 1. Make Payments On Time & In Full
The best possible aversion to bad credit, –and the best and first step toward repairing your credit, is making all bills, loans, and credit card, payments at all times, and paying them in full every month. Not only will this first step keep you from falling into the vicious cycle of owing interest and penalties, but it will also help you climb back out of debt.
Step 2. Reduce Your Debt
Look for ways to reduce your debt, whether it’s just paying things off slowly, enrolling in a debt counseling program, or joining a payment plan with creditors to whom you are the most in debt. Don’t let your debt sit in a corner and grow, –actively take steps to clear away all the red numbers, and you’ll be home free sooner than you think.
You can reduce your debt and the associated expenses, such as interest rates, late fees, and other finance charges, by paying a higher amount every month. The shorter time you pay off your debts or loans, the better it is for your credit score and finances. Avoid overspending and prioritize paying your bills and debts before splurging, like shopping for things you don’t need. Focus on your basic needs and ways to reduce the stress associated with accumulated debts by allocating a percentage of your monthly salary to pay them off.
Step 3. Understand Your Limits
This is the third most important step to take and remember throughout your financial life. If a credit card or bill sounds too high for you, or out of your league, then don’t do it! Your two best friends here are your basic math skills and your instincts. If you foresee a problem in the future, there’s a good chance there will be. Only purchase things you can afford, –it sounds simple, but it’s harder than most people think.
Step 4. Periodically monitor your credit report
Negative information about late or missed payments can lower your overall credit score. Monitor your credit report for incorrect information and dispute it when necessary.
Consider Your Credit Rank
When credit card companies determine whether they will accept your application for a credit card there are 4 categories you might fall under:
1. Excellent credit -You have no missed or late payments or have a low debt vs. earnings. With excellent credit, you are low risk and will likely be approved for loans or credit cards, get the best rates of interest, and have the most financial flexibility.
2. Average to good credit – You have 1 or more late payments but no missed payments. There are still many loans and credit cards available to you. You still qualify for good interest rates and rewards cards.
3. Bad credit – You have high debt, missing and late payments, and/or bankruptcy. Certain banks cater to people under this category. Consider a secured or prepaid card which should help to rebuild your credit if you make payments on time.
4. No Credit – Certain credit cards cater to people in this category. This category means no credit history. It is usually young people or new immigrants under this category. Your income, your credit history, and your debt level are important factors for the type of credit card and credit limit you may qualify for. Students should consider a student credit card to establish a credit history. Others with no credit history, such as new immigrants to the USA, may consider applying for a secured credit card, or a store credit card to begin building their credit history.
Disputing Inaccurate Information
As you probably know, you are entitled by law to a free annual copy of your credit report. Not just one, but three, one from each major credit reporting bureau. By obtaining these reports you can read for yourself what the companies are reporting to lenders about you and the state of your finances. Federal law grants you the right to review your credit history, and you also have the right to correct it or at least dispute inaccurate information.
Review your credit reports, –a copy from each credit bureau, preferably recent copies, and check to see if there are errors or mistakes in the information. If you find an error that would negatively impact your credit score, immediate correction is absolutely necessary. To dispute the inaccurate information you have to notify the credit bureau that is reporting the information in writing. Include a copy of the credit report and indicate the error, along with your signature. If possible include proof of the error such as a bill, receipt, or court records. Only send copies, not originals.
You are protected by United States law and now that the credit bureau has received your report of the inaccurate information they are required to investigate your claim within thirty days unless your claim is thought to be completely frivolous.
The credit reporting bureau is required to send all relevant information you provide about the error to the company or organization that originally reported the incorrect information. After having received this notice, the original information provider is then required to investigate and review the information. Once the investigation is complete the credit reporting bureau will send a detailed letter stating their findings, and a corrected copy of your credit report, for free. Also, if you request it, the credit bureau is required to send the corrected version of your credit report to any agencies that have reviewed your credit report in the last six months, –hopefully rectifying any case in which you were rejected for credit based on inaccurate information. Moreover, you can have the corrected report sent to any potential employer that received your credit report over the past two years.
If the credit bureau does not change your credit report despite their investigation, by request you can have them add details of the dispute to your credit report, explaining your side of the story.