Credit reports are a foundational part of our daily financial life. We are all generally aware that your credit report can determine what financial products and services you can qualify for. But your credit report can also have an impact on where you live and even who you work for.
Credit reports and credit scores have become a foundational tool for measuring our financial well-being. Because of the prevalence of the consumer credit report in society as a whole, it is more important than ever to have an in-depth knowledge of how the credit reporting and scoring system works.
Not every credit report contains identical information. And not every lender, landlord, or employer utilizes the same credit score. Understanding which credit reports and scoring models are most trusted and relied upon should clarify your priorities as a borrower and consumer.
The Three Main Credit Reporting Agencies
There are three major credit bureaus that compose the credit reports that most lenders rely upon. These three credit reporting agencies include Equifax, Experian, and Transunion, and they are responsible for producing the three reports that are most commonly used to measure creditworthiness and risk.
Equifax, Experian, and TransUnion are the major credit reporting agencies trusted to provide the most accurate reports in the U.S. regarding credit risk. There are several other credit bureaus that do credit reporting, but these three bureaus are the only ones of major significance.
TransUnion is a Chicago-based credit reporting company with offices in India, Hong Kong, South Africa, Canada, Brazil, the United Kingdom, and Colombia. TransUnion labels itself as a “global information and insights company that makes trust possible.”
The credit reporting agency Experian is currently based in Dublin, Ireland, with domestic headquarters in Costa Mesa, California. They initially only handled credit reporting for the Western United States, but the company now spans 37 countries with additional offices in Brazil and the United Kingdom.
Equifax is an Atlanta-based credit reporting company with operations throughout 24 countries, including Australia, India, Mexico, Russia, Singapore, Spain, the United Kindom, and several countries in South America. Equifax is an especially dominant credit reporting agency in the Southern and Midwestern United States.
What Is Included on Credit Reports?
Each of these three credit bureaus uses similar processes to compile the information included in your credit report. There are slight differences between their methods and how the information is laid out, but the outcome is alike.
All the credit bureaus collect the information deemed relevant to your overall creditworthiness and personal details to tie you to your credit report. These are the general categories of information included on your credit report by each credit bureau:
The identifying information on your credit files is used to connect you with your report. It is not used to measure your risk or calculate your credit score.
Basic details are included, such as your full name, date of birth, Social Security Number, previous and current addresses, phone numbers, and employer information. Updates to this information are often gleaned from new credit applications.
Information reported to the three major bureaus on all your past and current credit accounts will include the type of account (auto loan, student loan, credit card, mortgage, online advance, etc.), the date the account was opened, the credit limit or loan amount, the account balance, and the payment history including late payments.
Closed accounts will drop off your credit report after a certain amount of time has passed. There may be other accounts that are not included simply because the lender does not report them to the credit bureau.
When you apply for new credit, these will appear as hard or soft inquiries on your credit report. Soft inquiries are a result of companies checking your credit to pre-approve you for offers or when you pull your own credit report.
Meanwhile, hard inquiries are a result of authorization to check your credit report for a credit line or loan application. Too many hard credit inquiries can negatively affect credit scores. Hard inquiries can stay on your credit file for up to two years.
Credit bureaus will pull public records from state and county courts that are relevant to your credit risk. The records that are likely to show up on your credit report include repossessions, foreclosures, and bankruptcy filings.
When you default on a loan or miss too many payments on your credit card, the account may be passed off to a debt collection agency. Collection agencies report your past due accounts to the credit bureaus resulting in negative information on your credit report.
Utility bills and rent payments aren’t typically reported to any credit bureau, but if you have missed too many payments. And all collections will be reported to the credit reporting agency.
There are various different credit scores that rely on information provided by one credit bureau over the others for their calculation. These scoring models might have minor differences, but their metrics provide similar results, just like credit reports. The FICO scoring model stands above the rest as the most trusted for lenders, landlords, employers, and credit card issuers.
Your FICO Score
The FICO score was created by the data analytics company previously known as the Fair Isaac Corporation. While the FICO score is not the only credit score available, it is the most widely used measurement of a borrower’s creditworthiness. FICO scores are three-digit numbers ranging from 300 to 850. Lenders typically view this number alongside your full credit report to better understand you as a borrower.
The FICO score utilizes five components of information included in your credit report to calculate credit scores. These five categories and their levels of importance in calculating FICO scores are:
– Payment History (35%): A history of on-time payments will contribute to good credit, while too many missing or late payments will lead to bad credit.
– Amount Owed (30%): How much money you owe and how much available credit you have produces your credit utilization ratio, which is the highest concern of this component of your FICO score.
– Length of Credit History (15%): The average age of all your credit accounts is an essential factor in determining your credit score. This metric will also include the age of your oldest and newest accounts.
– Credit Mix (10%): The variety of credit account types that you have is called your credit mix. You are meant to aim to have a healthy mix of different types of credit rather than one genre of debt.
– New Credit (10%): Whenever you have a new hard inquiry on your report or open a new account, it will impact your FICO score calculation in the new credit category.
Your credit rating is incredibly important and should be checked regularly, just like your report. FICO scores should accurately reflect the information on your credit report.
Which Credit Report Do You Request?
There is no one credit bureau from which you should specifically request your credit report. When you check your credit report, you should be in a good position requesting from any one of the major three bureaus. There is no particular reasoning for obtaining one report over another first.
If you want to be in the best position possible with knowing where you stand regarding your credit, we recommend pulling all three reports and checking all three scores. By doing this regularly, you can be aware of all negative information contained in any of your credit reports.
Lenders and credit card companies may pull any of your credit reports or all three at once. So, if you want to cover all your bases, check your credit reports from all the major credit bureaus instead of just one.
How To Get a Free Copy of Your Credit Report
Thanks to the fair credit reporting act, every consumer has the right to a free annual credit report. You are entitled to a free credit report from each of the credit bureaus. Since your free credit reports might be slightly different and any of them could be used by lenders, we recommend getting your free credit report from all three credit bureaus every year.
Getting free access to your credit report yearly is incredibly easy to do. You can request or review your free credit score by visiting AnnualCreditReport.com or calling the Annual Credit Report Request Service at (877) 322-8228. You can request all the reports at once or periodically throughout the year.
After you have received all your allotted free annual credit reports, you can still request additional reports for a small fee. According to the laws set by the United States government, reporting agencies can charge no more than $13.50 for a copy of your credit report.
Why Is It Important to Check Your Own Credit Reports?
Most financial experts agree that taking advantage of the free report you can receive annually is crucial to maintaining healthy credit. Checking your credit report regularly will allow you to spot inaccurate or incomplete information that is negatively affecting your credit rating.
By requesting a copy of your report often, you’ll detect inaccurate information or identity theft faster, allowing you to correct the issues before they cause problems. If you find errors, you can dispute them with supporting documentation online or by mail with the credit bureau that produced the report. If there were an instance of identity theft, you would want to enact a security freeze on your reports and contact the Federal Trade Commission.
Obtaining your free credit reports every year will help you better understand why you have the credit rating you do and what negative information might be having the most significant impact. Having clarity on why you have bad credit will enable and empower you to rebuild credit and work towards a higher score.
Conversely, if you have a good credit history, reviewing your report thoroughly could help you understand what you are doing right and how to maintain your excellent credit habits.
Other Tips for Improving Credit Scores
Checking your report regularly will help you keep track of the state of your credit. But what about ways to improve your credit score? We have a few tips to raise your credit score so you can be more pleased with what you see when you check your report.
Pay Your Bills On Time
Make all your monthly payments on time. Doing this regularly over the course of a year or two will do wonders for your payment history. More on-time payments will help the late and missed payments disappear into the past so that they no longer negatively affect the calculation of your score. Your payment history holds the most significant weight in your credit score at 35% so this is one of the best things you can do for an improved score.
Get Credit for Utility and Rent
Even though utility and rent payments do not typically get reported to the bureaus, there are services available that can help you get credit for bill payments like these. Experian Boost gets your phone, electricity, rent, and other bills reported on your credit file giving you a boost to your payment history that could raise your score overnight.
Minimize Your Debt
Pay down the balances on your credit cards but keep the accounts open. Doing this will decrease your credit utilization ratio by raising your available credit. Amounts owed is worth 30% of your credit score calculation so a reduced credit utilization could help your score tremendously.
Most importantly, you must be consistent in your efforts for credit improvement. Patience and perseverance will make the biggest difference in raising your score. More often than not, your credit score will not go up a hundred points overnight. You need to be willing to put in the effort to reap the rewards you wish to enjoy.
Which Credit Report Should I Get? What Scores Do Lenders Use?
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How do I get a copy of my credit reports? | Consumer Financial Protection Bureau