What is a Credit Report and How Does it Work?

Have you ever wondered what a credit report is? Well, you are not alone. So, let’s discuss a credit report. What is a credit report you might be wondering? As the name suggests, a credit report is a card which reports or shows your credit.

A credit report gives a detailed breakdown of a person’s credit history. Credit reports are created by the credit bureau. There is three major credit bureau in the US and there are TransUnion, Equifax, and Experian.

These credit bureaus take financial information and bill-paying habits and create a unique credit report for each person. Lenders view this report and decide the creditworthiness of a customer. Although the reports created by these bureaus are not the same, they are quite similar.

Whenever a person applies for a credit card, lease, loan, loan for a car, etc… the lender often reviews his credit report.

This is because a credit report shows how the individual pays bills and repays loans; what are his monthly debts; how much credit the person has available, any bankruptcies or tax liens, and other important information such as social security number, name, address, etc.

That will help the potential lender determine the creditworthiness of the customer.

Information in a Credit Report

A credit report contains personal information about the individual, such as current and previous addresses, employment history, name, and social security numbers.

It contains a summary of the person’s credit history, such as the number and type of bank or credit card accounts that are due or in good standing. It also includes credit limits and total loan amounts

It contains account information about bankruptcy, tax liens, high balances, credit limits, and the date accounts were opened.

Additionally, it is important to note that credit reports keep negative information about the customer for seven years, while bankruptcy filings last on the credit report for about ten years.

How Do Credit Reports Work?

For you to understand how the credit report works, you have to know that a credit report is typically divided into four sections:

Personal information

The first section of a credit report contains the personal information of the individual. Most times, this section might contain variations of the consumer’s name or social security number, because it was reported incorrectly by a lender or other entity.

Credit information

The second section of a credit report contains several reports and detailed information on the lines of credit of the customer. There are also called trade lines.

Public records

The third section contains public records of the customer, such as tax liens, judgments, and bankruptcies.

Inquiries

The fourth section, at the bottom of the report, shows the list of every entity that has recently asked for the customer’s credit report because of an event like applying for a personal loan.

Whenever an individual applies for a loan or credit, the lender is legally allowed to access his credit report. Also, employers can access an employee credit report as long as the individual agrees and grants permission in writing.

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How Do You Get a Credit Report

You are allowed to get one free copy of your credit report every year from each of the three major credit bureaus earlier mentioned. However, you have to ask for them before they are sent to you. Although, there are special considerations for getting additional free credit reports during the year.

There is a federal law that gives consumers the right to ask for a free credit report from these credit bureaus if any company has taken adverse action against them.

Adverse action in this scenario includes the denial of insurance, credit, or employment. However, the customer has to ask for the report within 60 days from the date the adverse action happened.

Also, a customer who is a victim of identity theft, on welfare, or unemployed and plans to look for a job within 60 days is entitled to a free credit report from each of the three agencies.

Additionally, you can pay to get a credit report through myfico.com.

How to Settle Inaccuracies on a Credit Report

When you find any mistake on any section of the credit report, it should be taken up with the agency that shows the error. You can write a letter that lists each incorrect item you found on the report and states the reason you are disputing it.

For example, if you have never lived in Texas and the report shows, you have, gather every document and any evidence which might prove that it was a mistake. Then, send everything by certified mail and get a return receipt. The agency has only 30 days to respond to you, so, you will quickly see changes.

What does an “open account” mean on a credit report?

An open account on a credit report means that you opened an account on a line of credit and never officially closed the account. For example, you finish paying a department store credit card; however, you forgot to call the store and cancel it, that account will still show on your credit report.

Even though you have not used a credit card for a few years, it will continue showing as an open account on your credit report until you contact the company and officially close or cancel the account. So, stop procrastinating; just go ahead and call that department store and close that credit card for good.

What does the “U” stand for on a Credit Report?

You must have seen the alphabet “U” on your credit report and were probably thinking it meant unique. Well, no, that is not what it means. The “U” on your credit report means “unclassified” or that the account is yet to be updated at the time the report was generated.

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Typically, the letter “U” on your credit report is not something to be worried about and has no negative impact on your credit score. It is one of the many status codes that appear on a credit report.

Most of the codes usually mean that there is an issue with the account such as it has been sent to collections or past due. “U” could be used to show that the account is new and that no payment has been made on it, yet.

Who can see my Credit Report

However, most people cannot access your credit report. Some entities and organizations are legally allowed to ask for your credit report; these are the government, potential landlords, collections agencies, banks, creditors, lenders, and insurance companies. Potential employers can access your credit report when they get permission from you in a written form.

However, laws about who can access your credit report vary according to the state.

How Do Credit Bureaus Get Information

You might probably be wondering “How do the Credit Bureaus get What is on Credit Report?”. Simply put, the credit bureaus are relaying the history of your dealings with creditors and potential creditors based on the information they get from them.

Firstly, let’s know the meaning of a credit bureau. Credit Bureaus are clearinghouses for credit information about individuals. Thousands of local and regional credit bureaus are usually affiliated with the three large credit bureaus, TransUnion, Experian, and Equifax.

These credit bureaus get their information about a person’s credit history directly from creditors. For example, if you apply for a loan and provide the lender with all your personal information, such as your name, previous address, employer, credit cards you have, etc… the lender contacts, a credit reporting agency (CRA) to review your credit report. Then, forward the information you supplied to the CRA.

The lender will also report your payment history to the CRA when you are granted the loan and start paying, this becomes part of the report. Also, the CRA has access to public records information like court records about the customer.

Additionally, all the transactions you make concerning credit are reported directly to the CRA monthly by the merchants or creditors you deal with. While large creditors report information about the customer to all three national credit bureaus, some report to just one. Thus, it is important to ask for your credit report from all three, so as not to miss anything and make sure to immediately handle any mistake you find.

Conclusion

From the information gotten from this article, a credit report is a card that shows detailed information about how you have handled credit accounts including your personal information, payment history, and types of accounts.

The information that your credit report contains helps potential creditors and lenders in their decision-making process, it helps them decide if you are creditworthy, whether to extend your credit and on what terms. Also, potential landlords and employers use it to decide if you should be granted a lease or offered a job. Insurance firms review if you apply for their services, such as insuring your car, etc.

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The fact that a credit report helps these groups of individuals determine if you should be granted credit or not, means that credit reports are important. Thus, you need to make sure that the information on your credit report is accurate and complete. Most of these individuals can access your credit report without your knowledge, so, regularly check your credit report to make sure it is correct and up-to-date.

FAQ

What does a credit report show you?


A credit report shows detailed information about how you handle your credit accounts, the types of accounts, payment history, public records, and personal information about the customer. This includes your social security numbers, previous address, current address, name, tax lien, etc.

How does a credit report affect you?


A credit report is a fine way of checking your credit score and making sure that your personal and account information is correct. Also, it helps you identify signs of potential identity theft. Besides, knowing the information on your credit report helps you to determine your chances of getting a loan or credit and allows you to improve your credit and become attractive to creditors.

Who uses a credit report?


Creditors, lenders, insurance companies, potential employers, potential landlords, collection agencies, and similar organizations use the information in your credit score to determine if an application for a loan, credit, insurance, job, or lease should be granted or not.

How do I get my free credit report?


You are entitled to a free copy of your credit report every year from each of the three national credit bureaus. However, it is not automatic, you have to order your report and you can order online from annualcreditreport.com, which is the only authorized website for free credit reports, or call 18773228228.

How far back does a credit report show?


According to the Federal Trade Commission, the information on your credit report goes way back to seven to ten years ago. Besides, some data might appear longer. This is to make sure that creditors can make good judgments about you based on your past and current financial activities. Probably, you got better, making bills on time or you got worse.

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