What Is a Credit Report and Credit Score

Although most of you will be aware of what a credit report and credit score is. It is explained here.

What is A Credit Report?

All your credit related transactions which includes credit card payments, mortgage, automobile loan etc. are recorded in a document known as the credit report. Along with recording the details of particular credit account (credit card account, home loan account, personal loan account, auto loan account etc.) such as the amount of money borrowed, the balance, the interest rate, payment history, a credit report records late payments and delinquent accounts as well.

Similarly a credit score is the three digit numerical number that is calculated using the information present on your credit report. A credit report and a credit score reflect the creditworthiness and the risk of an individual to a lender.

What Information does it contain…

A credit report contains personally identifying information such as name, address, where you work as well as your social security number.

It contains a list of the credit accounts that are functioning under your name. Only credit accounts are included like credit cards and loan accounts. Your bank savings account and investments have nothing to do with your credit report

It contains a record of your payment history of the payment you make against your bills on credit related accounts. Any late payments or delinquent accounts are also mentioned.

Who makes the credit reports…

Credit report are compiled by agencies known as credit bureaus. The three major national credit bureaus are Equifax, Experian and TransUnion. So you are going to have 3 major credit reports from each of these major credit bureaus. In most cases you should expect the information on each of them to be an identical reflection of each other unless one of your lenders reports to one and not the other.

National credit bureaus collect information from lenders and creditors all over the country such as credit card providers, banks, loan providers and any other creditor with whom you do business with as long as that creditor has chosen to report and share information with national credit bureaus.

Not all creditors report to all the three national credit bureaus while some may not report to even one. This,  however, is rare.  You cannot have an account included in your credit report if the lender does not report to that credit bureau. It is the lender’s choice.

The primary business of the national credit bureaus is to compile information about the credit history of consumer and sell it to businesses who further base rate credit decision on the credit report.  Not all businesses can view the credit report for a consumer.  The people who have excess to view the credit report of a consumer is limited by the “permissible purpose” as defined by the Fair Credit Reporting Act (FCRA).

How is information for credit report collected…

Conversely these same lenders and creditors work on a information sharing basis with the credit bureaus. All the creditors that subscribe to the national bureaus to view credit reports of individuals also share the credit information that they have on their existing consumers.  The report payment history, loan account details and any other delinquency. Another source of information for the National credit bureaus are the public records.  Filing for bankruptcy, tax liens and judgment passed in small and federal courts are also listed on the credit report.  Only the rulings of the court that concern credit related issues are recorded.  Other records such as criminal record is omitted from the credit report.

Checking your credit report periodically is important for maintaining sound financial prospects.  Since almost all the creditors rely on the credit report and the credit score to judge your credit worthiness before they give you a loan, keeping your report accurate and up to date is important. Usually this takes care of itself, but there is no harm in checking yours if you suspect that there might be something amiss on yours that could prevent you from qualifying for a loan in the future. Forewarned is forearmed.  You should do all he can to make sure that the information being reported on your credit report is positive and healthy.

You can obtain a credit report by contacting any of the three national credit bureaus.  The FCRA also allows you to get a free copy of your personal credit report from each of the three national credit bureaus once in 12 months.  This means three free credit reports in the year. You can get these from www.annualcreditreport.com

What is A Credit Score

The credit score or a person is a numerical value that ranges from 300 to 850.  A credit score is the summarization and reflection of the information present on your credit report.  While the lender can come to the same conclusion about your creditworthiness by viewing you credit report, the credit score provides an easy reference to the lenders to assess your credit risk before making a decision about extending alone credit card.

Consumers with a higher credit score a consent to be less risky borrowers and with consumers who have a lower credit score.  While consumers with different credit scores may qualify for a loan as long as it is above the threshold for the limit of a creditor, it is common that a consumer with the lower credit score gets charged higher rate of interest on credit cards and other kinds of loans.  If the credit score is lower than the qualifying threshold limit for certain creditors the consumer may be denied alone altogether.  There are various different credit scoring models in use today.  In fact it is estimated that hundreds of such credit scoring models are in existence.

The reason is that many lenders prefer to use specialized scores that cater to their specific lending decision-making needs.  For example, the requirement of a credit card provider may be very different from an insurance or a mortgage loan provider.  However, the most widely used version is the FICO score model named after Fair, Isaac Corporation.  There are several versions of the FICO score model in use today.  More recently a new scoring model called the VantageScore has been developed which ensures uniformity amongst all the three national credit bureaus provided that the information present with all three of them is the same.  Although the credit score may differ from one model to another, the risk and the creditworthiness that it represents according to its own scale of measurements is typically almost the same. Credit scores are not included along with the free annual credit report that you can get from www.annualcreditreport.com.  You can purchase the score separately from other of the three credit bureaus or directly from my FICO.com.

Does A Late Payment Get Removed From Credit Report After Payment is Made?

Late payment information on a credit report stays on for a period of seven years from the date that it was first reported even if the account is paid off and closed or made currents by regular payment.  The entry in the credit report will show by how many days the payment was late.  The reason why a credit report continues to hold information about your payment history in the past is that the payment behavior of the consumer is also a factor that represents the credit lending risk.  Lender likes to evaluate the creditworthiness of a potential borrower from the trend of payments that he has shown in the past.

She this does not in any way means that you should not pay off your debt because that will result in the account being reported as delinquent which has the worst effect on your credit score and the decision-making process of your lenders.  If the account is charged off and passed on to a collection agency then a new collection account will be opened in your credit report which also has a severe effect on your credit report.

It Is Possible To Not Have a Credit Report At All?

It is quite possible to not have the credit report at all.  Many people are under the misconception that a credit report for an individual is created when you are issued a security Social Security number.  In fact there is no correlation between the two.  A credit report only gets created when you open a credit account and the details of your credit get reported to the National credit agencies.  If you have never had the credit account then it is quite possible for you not to have a credit history at all.  It is also possible that the creditors you deal with do not report their data to the National credit agencies.

Creditors have a right to choose to report not report information about their consumers to the National credit bureaus under the fair credit reporting act.

In order to maintain a credit score active and current data needs to be reported to the National credit agencies at least once in a minimum duration of time which may be six months, 12 months of 24 months depending upon credit scoring model in use. If you had active credit accounts at some point of time but have closed them more than 10 years back, those accounts will no longer reflect in your credit history, provided there was no negative information attached to those accounts.

If the negative information such as the delinquency of an account is reported that such an account gets deleted from a credit report seven years from the date that it was reported as delinquent to the credit bureau.  In order to re-establish credit report any to apply for fresh credit.

You may start a fresh credit account with the creditor that you dealt with in the past or get someone to sign as the guarantor and security. You may also ask somebody to back you as a joint account holder as you may have problems getting a credit account initially as you have no credit report to base the lending decision upon.  Once you have established a credit report of your own you will be in a position to qualify for credit on your own.

Do Name Variations On Credit Report Affect Credit Score?

A credit report typically reflects and records all the various name changes that you have. In case of women, their maiden name may show as well as their married names. If married more than once then the previous names may still continue to show as long as previous creditors keep reporting them. This does not affect your credit score.

The reason why a credit bureau records all the names variations that are presented to it by the creditors so that it can keep an accurate record of your identity. It ensures that all your accounts, the ones that are under your maiden, married or changed name are included in your credit report. Having accounts that get skipped from a credit report because the name records with the creditor are not updated could hurt your credit score.

The second and very important reason for recording all the name variations is prevention of fraud. On checking your credit report, the names reported can tip you off if someone is using your name variation or a different name to open credit accounts using your information.

You should note that the number of name variations on your credit report will not make a difference to your credit score as identifying information has no effect on the credit score. So in case you are worried about your previous or maiden name still being present on your credit report, please know that removing or changing them will make no difference.

Can Landlord Give a Credit Report to the Tenant

First of all landlord can pull the credit report of his tenant once he has received written permission from the tenant. He may then freely share the information in the credit report and even give the tenant a copy. If a landlord decides to refuse tenancy to a client based on the credit report he is mandated by the law to reveal the factors present in the credit report that affected his decision.

However, you should understand that in case you want to get a copy of your credit report, getting one from your landlord or in any other business that has the ‘permissible purpose’ may create a certain demand of confusion. The copy of your credit report that is provided to businesses is different from one that is provided to you on your personal request. Most importantly the copy that is provided to businesses has some information missing that will be present on your personal copy of credit report. For example, the number of enquiries that have been made for your credit report along with the details of the source of enquiry such as name address etc are excluded from the copy that is provided to businesses. Also certain information like name of lenders and creditors are abbreviated. In many cases the copy provided to businesses is code for computer processing.

In case you want to access your credit report you should know that you are entitled to one free copy from each credit bureau once in 12 months. Depending upon the stage that you live in you may be eligible for more than one copy in a year or may be eligible for discounted prices. Certain circumstances like being refused a loan in the past six months because of your credit report, being unemployed and seeking a job or being recipient of welfare assistance can and title you to the feed credit report be on your stipulated free one.

In order to access your free credit report were to www.annualcreditreport.com. In order to read the step-by-step procedure to follow to access your free credit report go to www.crediaid.com/free-credit-report.htm.

What Are Hard And Soft Inquires On A Credit Report

An enquiry is when someone asks to gain access to your credit report. There are two main kind of inquiries that are made in to a credit report, hard inquires and soft inquiries. Out of these soft inquires have no impact on your credit score while the hard enquires, if made frequently within a short duration of time can impact your credit score negatively.

In order to learn where what inquiries are being made in to your credit report, order a copy of a recent credit report. You will receive the name, address and contact information of all sources that made an enquiry into your credit report.

What Are Hard Enquires?

A hard enquiry is recorded in your credit report when a business checks in to your credit report for the purpose of granting you a loan or credit. lets say you apply for a credit card. The credit card company will call for your credit report in order to check your credit worthiness. This is called a hard enquiry. If you apply for a home or an auto loan. The creditor will place a similar enquiry for your credit report to the credit bureau. if you are shopping for a line of credit and apply with several financing services, the result will be many hard enquires finding their way on your credit report. this is sometimes detrimental to your credit score as it may be perceived by some creditors that you are in trouble financially and are actively looking for further credit in order to keep your finances afloat.

It is for this reason that enquiries are recorded on the credit report in the first place. It is to give a new creditor an idea of how often and where all your have applied for credit. It is considered a bad sign if the credit report of a person shows random and frequent applications for credit. it brings the issue of a person getting in to a debt that is too large for them to repay. For example, someone who is already under a debt with the existing credit card may try to open other credit card accounts to continue using money that they do not have on credit.

However, in today’s world of competition, many creditors understand the fact that many consumers will check out the services with various creditors before taking up a large amount of loan such as home loan or an automobile loan. They will not consider this information on your credit report to be adverse information except in the case where you have already taken a similar loan already.

Some creditors that make enquires to periodically check on their existing customers are not counted as hard enquires and have no impact on the overall credit score.

What are Soft Enquires?

Soft enquires are when enquires are made in to your credit report by yourself or for the purpose of re-approved marketing offers. many businesses are looking out for potential customers for the credit services that they are offering. For this reason they may contact the credit bureau to look in to the credit reports of individuals that match a certain criteria. These enquiries do not impact your credit score adversely since they are not being made because of you looking for extra lines of credit.

Will The Enquiries Made By Myself Affect My Credit Score?

You yourself can make enquires in to your own credit report without it reflecting unfavorably. Many people do this for the purpose of monitoring the activity that is taking place on their credit report and to safeguard it from identity theft. In fact, the credit bureaus themselves offer credit monitoring services that allow you to check your credit report from all three credit bureaus as frequently as you like without it affecting your credit score at all. One such service is TrueCredit offered by TransUnion Credit Bureau. True credit is a service through which TransUnion offers credit monitoring, identity theft protection and a snapshot of all the 3 credit reports from Equifax, TransUnion and Experian in one place. They also offer the TransUnion score along with this 3 in one report and a personal analysis of the score.

Read more about the services offered by TransUnion here.

 

How Long Do Enquires Stay Listed On A Credit Report?

Generally, an enquiry in to your credit report shows on a credit report for a period of 2 years from the day that it was made. a hard enquiry can typically impact your credit score for the 1st year. after that, due to the advent of time, it looses its relevance.

Who all Can Place Enquiries In to My Credit Report?

You must remember at all point of times that not everyone can make an enquiry in to you credit report as and when they please. Only businesses and government bodies that have a “permissible purpose’ can do so. The ‘permissible purpose’ has been defined a federal law that is known as the Fair Credit Reporting Act.

Read who all qualify as having a ‘permissible purpose’

How can I limit who makes inquiries?

One way to limit the access to your credit report is to place a Security Freeze on it. this restricts the access to a large extent and is recommended only under certain conditions. In order to read more about what a security freeze is and how to place a security freeze on your credit report, click here.

There are other moderate ways of doing this as well, without blocking the access to businesses and offers that you may desire.
You may request that consumer reporting agencies do not distribute your name on lists used by creditors and insurers to make unsolicited offers of credit and insurance. Requests can be made by telephone or in writing by filling out a form available from each credit reporting agency.

Phone – Call (888) 5-OPT-OUT to notify all three credit bureaus (Experian, Equifax, and TransUnion) that you wish to opt-out of pre-screen offers. Telephone requests last for two years.

Online – Opt out of pre-approved offers of credit or insurance at www.optoutprescreen.com. The level of opt-out permanence can be chosen on the site.

Mail – Opt out of pre-approved offers of credit or insurance via written request using the following address:
TransUnion Name Removal Option
P.O. Box 505
Woodlyn, PA 19094
Written requests are permanent.

Who Is Authorized To View My Credit Report?

Who is allowed permission according to the law to pull and see your credit report.?

The fair credit reporting act states that an agency should have what is called the “permissible purpose” to be able to access and individual’s credit report. Only businesses and government agencies are deemed to have a permissible purpose if at all. No individual is given the right to access your credit report apart from yourself. The one exception to this rule is in the case of an employer seeking a potential employees credit report has a background check. But even for this kind of a request the employer has to have written permission of the employee.

Your credit report is protected from being accessed by anybody but yourself by means of various security checks. During the process of accessing your credit report you are required to provide answers to security questions and such information that should only be known to you. These questions include your social security number, details of your accounts such as home loan account number, the amount of your Mortgage etc.

If one is unable to provide satisfactory response to these questions they will be required to produce a valid identity proof before a copy of your credit report can be mailed to you.

The result of somebody accessing someone else’s credit report by means of falsely representing to be that person is tantamount to committing identity theft which is punishable by a fine and potentially imprisonment.

Under the Fair Credit Reporting Act, a credit report may be obtained only:

  • When authorized by the consumer in writing.
  • When there is a legitimate business need in connection with a business transaction initiated by a consumer.
  • When a consumer applies for credit.
  • For the review or collection of a consumer’s account.
  • To review a consumer’s account to determine whether the consumer still meets the terms of the account.
  • For making “prescreened” offers of credit.
  • For portfolio analysis of existing credit obligations.
  • For employment purposes, including hiring and promotion decisions, when the consumer has given written permission.
  • For underwriting insurance when a consumer has applied.
  • For use by state and local officials in connection with determination of child support payments.
  • To determine a consumer’s eligibility for a government license or other benefit when the law requires consideration of the consumer’s financial responsibility.
  • When ordered by a court or federal grand jury subpoena.

Does an Unemployment Claim Appear on the Credit Report?

The credit report only shows credit and debt related financial information. Apart from this credit bureau also collects information from public records such as tax liens, federal court judgments, civil court judgments. These judgments include bankruptcy filings and in certain states, defaulted child support payments.

While an unemployment claim does not directly appear on your credit report it is most likely that it will have an indirect impact on your credit rating. Being unemployed is the primary reason, after bad money management, for people to default on their loans and credit cards.

If you face unemployment and can anticipate problems with repaying your debt in the future it may be a good idea to inform and negotiate with your creditors beforehand. If your credit behavior has been responsible and your account is in good standing, your creditors may be understanding and keen enough to extend or change the terms of repayment in order to keep your account active. By offering lower rates of interest or extending the duration of the loan, both the parties stand to benefit rather than allowing the account becoming delinquent.

How Often Should I Check My Credit Report?

The number of times that you check your credit report in a year differs from one situation to another. First of all, you can check each of your credit report from Experian, Equifax and TransUnion, which are the 3 main credit reporting agencies, absolutely free every year. There are no strings attached and you will not be charged, unless you unwittingly or deliberately, end up ordering some ancillary service as well such as credit monitoring or your credit score. (How to order a free credit report over Phone, Mail and the Internet).

Did you know that majority of people that set out to get their free annual credit report online end up spending money doing it? If you do not want to be one such person, read our post on How to Get Your Credit Report On www.AnnualCreditReport.com. You will learn how to anticipate and avoid paying for extras.

That said, you can check your credit report as often as you wish beyond the free report, as long as you are willing to pay for it.

The question is, whether you need to. For most people, the answer will probably be “no”. Most of the people do not end checking their credit report even once a year, in spite of it being free, simply because they have no need to.

There are times when you have an excellent reason to check your credit report. The most popular being when you intend to apply for a loan or credit. The more serious the nature of the loan, the more important it is that you review your credit report. This is done so that you have time to address possible issues on it and make it as competent and complete as possible before the lender has a chance to review it. For example, if you intend to apply for a home loan, check your credit report and score 6 months in advance so that you have time to do something about any information that you do not like. For more help on fixing and repairing your credit report, view our sections on Fix Credit Report and Improve Credit Scores.

Similar instances are when you are looking for a job. It is not uncommon for the employer to review the credit file of an employee before hiring. So it makes sense for you to know what your credit file says about you beforehand. The good news is that you eligible for a special free credit report if you are unemployed and seeking employment. Contact the credit bureaus directly for more details. You can find the contact information for credit bureaus here.

All said and done, you should check your credit report at least once a year. Just to make sure that it has all the correct information about you. Even if you do not intend to apply for a loan, having your credit file in order is something that you must do. Your credit report is quiet an important record as far as your future financial transactions are concerned. One way to do is to order your free credit report from each credit bureau at the same time. Another way is to order each credit report every 4 months. Depending on works better for you, you can do either. Remember, your 3 credit reports are liable to be different from each other because: a) They have different methods of reporting and recording data b) Different lenders might report to different credit bureaus.

There are situations that require you to be more vigilant about whats being reported on your credit file. These situations are usually when you are trying to build credit and wan to monitor your credit file or when you have been a victim of identity theft and want keep a close watch on whats happening with your credit. In these circumstances you will probably need a service like credit monitoring that, for a fixed monthly fee, allows you to see your credit report unlimited number of times.

So the question of how often you should check your credit report really depends on you. Once again, be disciplined enough to check all 3 credit files from the 3 main credit reporting agencies at least once a year. It is not uncommon for mistakes to be present on a credit report such as wrong social security number, incorrect name, account wrongly reported etc. all of which can effect your credit score.

Read more about What Information to Dispute and Correct On a Credit Report.

Remember, even if you are not bothered about it now, fallacies on a credit report can come back to bite you in the future.