Understanding Your Credit Reports

Understanding Your Credit Reports

Like a written story of your financial life, your credit report provides potential lenders, service providers, employers, and other authorized parties with information about your credit history. If they like what they see, you’ve got a better shot at getting what you want from them. But if your story has too many twists and turns, you might find that they’re not so accommodating.

When lenders are considering extending you credit, they take a look at how you’ve handled past credit obligations. As a consumer, this means that the way you manage your current credit will impact your possibility of getting more credit in the future. Understanding your credit report can help you use credit responsibly and identify any credit report errors.

Your credit report contains the following information:

Personal information: Your name, date of birth, places of employment, and address history may all be included in your credit report. These pieces of information serve to identify you and to keep your credit information separate from that of other consumers.

Accounts: Your credit report provides a detailed list of your open and closed credit accounts. These include credit cards, mortgages, car loans, personal loans, and lines of credit—sometimes they even include “overdraft protection” on your checking accounts. Each account will show the following information:

  • The date the account was opened and the account status, which shows creditors your responsibility with debt obligations. More experienced consumers of credit are considered less risky to creditors.
  • Limits and balance information, which details the amount of credit that has been extended to you, and how much of it you are currently using. Many creditors consider consumers who have used too much—or too little—of their available balances to be a higher risk.
  • Minimum payment amount, which shows the minimum amount due each month on the account.
  • Your payment history summarizes monthly payments, which is usually marked with a symbol indicating on-time or missed payments. Late or missed payments—even just one or two of them—are considered by creditors to be very risky behaviors.

Collection accounts: These entries on your credit report represent accounts in your name that your creditors have turned over to debt collectors. They are considered to be very negative factors for creditworthiness, because they signify debt that you have failed to pay back. Collection accounts are very damaging to your credit rating.

Public record information: Like collection accounts, a public record on your credit report is negative and hurts your credit rating. Public records can include a bankruptcy, foreclosure, tax lien, civil suit, or court judgment.

Credit inquiries: A list of everyone who has pulled your credit report in the last two years will appear on your credit report. Inquiries can come from companies with which you currently have accounts (such as utilities), companies with which you’ve applied for new loans and credit cards, property management and leasing organizations, and employers with which you’ve applied for a job.

Consumer statement: You can contact the three credit reporting agencies (also known as credit bureaus) to include a personal statement on your credit report. For instance, if there are special circumstances surrounding your credit history, you can write an explanatory note to include on your report. Potential lenders may factor this statement into their lending decisions.

There are also some things that should not be on your credit report. According to the Fair Credit Reporting Act (FCRA), negative credit information like delinquencies, charge-offs, collection accounts, and public records (such as tax liens and court judgments) must not remain on your credit reports for longer than seven years. (One exception to that rule is Chapter 7 bankruptcy, which can remain on your credit report for up to ten years.) The good news is, once negative information falls off your credit report, it can no longer influence your credit score.

You’ve already taken that important first step in understanding your credit scores by signing up with a ScoreSense membership. Make sure you check your reports regularly to stay on top of any unexpected changes.