October 2005

How to Review Your Credit Report

. . . and correct it when necessary

Because your credit history can affect so many aspects of your life—from your ability to get a mortgage or auto loan to the rates you're charged for insurance or whether an employer will hire you or landlord will rent you an apartment—wise consumers keep a close watch on the accuracy of their credit reports. Regular review of your credit report is also one of the best ways to spot certain attempts at identity theft.

In September's Remar's RealityCheck Report, we looked at the importance of your credit report and the pros and cons of using a credit monitoring service. But whether you monitor your credit report yourself or subscribe to a credit monitoring service that alerts you about changes or suspicious activity, you must still know how to read your credit report, interpret the information in it, and take steps to correct errors. Only you can do these things. This report shows you how.

What is a credit report and how is it used?

Your credit report provides a record of how you have used credit. It includes personal identifying information, employment history, a record of your credit accounts and payment history for the past seven years, a record of any problems you've had using credit such as a bankruptcy or defaulted account, and inquires made about your credit. The section of this report, What categories of information are represented in a credit report?, details each of these types of information.

By law, credit bureaus may provide information to:

• Lenders who are considering extending you credit, such as for a car loan, mortgage, credit card account, installment loan purchase of furniture or appliances, etc.
• Potential employers who are considering hiring you initially or changing your employment (promotion, reassignment, etc)
• Insurers from whom you've applied for a policy
• Any other individual or company with a "legitimate business need for the information." This last category, as you can see, leaves the door wide open to many uses. Potential landlords also fall into this broad category.

Your credit rating—how good a credit risk you are—is based on your credit report but is not the same thing. For a credit rating, most creditors use a credit score derived from the information in your credit report. (Read more about credit scores in Credit Scoring from the FTC.)

How to obtain your federally-mandated free credit report

As required by an amendment to the Fair Credit Reporting Act, as of September 1, all individuals in all U.S. states and territories are able to request one free report annually from each of the three major credit reporting agencies. Every consumer also has access to a free credit report if you've been turned down for credit or in other circumstances. Click here for information on how to safely order your official free credit reports.

What categories of information are represented in a credit report?

Credit reports typically have four broad categories of information. Each credit reporting agency, however, may present the information in differing order and formats and in more than four sections.

• Personal identifying information. This section includes your name, current and former addresses, date of birth, Social Security number, phone number, current and previous employment, and the name of your spouse (if any). Other information such as a separate Tax ID number may also be included. The section also notes variant reported spellings of your name or reported variants of your Social Security number.
• Specific credit account information. Every credit report provides specific details about every credit account that has been reported to the CRA. (On a commercial credit report this category is often called trade lines.) The accounts detailed include auto loans, mortgages, credit card accounts, and other types of loans from banks, finance companies, credit unions, or other creditors. The information does not include information about checking or savings accounts.
  
  The information may be divided into accounts in "good standing" and accounts that are negative or have been turned over to collection agencies. The information about each account includes the creditor's/lender's name, account number (or a portion of it adequate for identification), the date the account was opened or closed, amount borrowed or maximum credit limit, the account balance, minimum payment/installment payment amount, and a history of the timeliness of the payments. The payment history usually covers several years (up to seven) and indicates the specific timing of payments (on time, less than 30 days past due, 30-60 days past due and so on). The date the information was reported to the CRA is also included.
• Public Record Information. This information includes information from federal, state and local courts pertaining to overdue debt or financial judgments related to credit. Such items include bankruptcy, foreclosures, liens against you, tax liens, wage attachments, and other court judgments such as those related to child support or alimony.
• Inquiries. A credit report includes all requests to view your credit report. When you apply for any type of credit (or perhaps apply for a job or apartment), you typically give the potential lender permission to view your credit report. These are "voluntary" or "hard" inquiries. "Involuntary", "soft," or "promotional" inquiries such as those made by companies sending out "pre-approved" credit offers, but not requested by you, are also recorded. Companies with whom you have an account may also have permission to review your credit report periodically. On your personal credit report you can see all these inquiries; only the voluntary inquiries should appear on a report made to any other party.

How do the CRAs get the data for individual credit reports?

Business entities that have extended credit to you report information about their accounts to the CRAs. For this reason some of your credit accounts may not appear on your credit report or in some instances information may not be current. Different CRAs may also not receive the same information; that's why it's important to review all three. CRAs obtain other information from public records.

In what format is information presented in a credit report?

Judging by the sample reports provided by Equifax, Experian, and TransUnion on their websites, the personal or consumer credit report that individuals may request is presented in a clear format in plain English. It may help, however, to be sure that you understand some of the terms below.

In contrast, a commercial or business credit report (what a potential lender receives) typically is presented in a short table form that includes a short-form "credit summary" and is also loaded with abbreviations and codes. Occasionally, you may see a business credit report. A mortgage lender, for instance, showed a colleague her report from his file and asked her to explain a couple of items. If you encounter a similar experience, ask the loan officer to explain any abbreviations you don't know.

Now to the important terms you should understand:

• Date reported. When the creditor sent the report to the CRA
• Date of last activity. When you last used the account, made a payment—or the last time such was reported.
• Status or payment status. The current status of the account with regard to activity and payment. With regard to activity, the account may be open, closed, inactive, paid, and so on. With regard to payment status, the report may list this in clear English ("past due 60 days") or may use a number code (typically 1 - 9). The number codes, to give just a sample, generally represent this type of scale, though there can be variations among credit bureaus:
  
  
  • 0 or C = paid on time; current
  • 1 = paid 30 days past due date
  • 2 = paid 60 days past due date
  • 3 = 90 days past due
  • 4 = 120 days past due
  • 5 = 150 days past due
  • 6 = more than 180 days after due date
  • 7 = paying under a repayment plan such as Wage Earner Plan or Bankruptcy Chap 13
  • 8 = Derogatory such as repossession or foreclosure
  • 9 = Bankruptcy Chapter 7, 11, or 12
  • 00 = account too new to have data
    
    
  • The number codes may be prefaced by a letter indicating the type credit.
  • I = installment loan, such as an auto loan
  • R = revolving credit, such as a bank or store credit card
  • M = mortgage
• Payment history, late payments, or "Lates." A summary or chart over a specific time (such as 24 or 36 months up to seven years) of how you paid each period, how frequently you paid late and how late the payments were. If you always paid on time, that is indicated.
• Charged off. This negative term indicates a debt that the creditor has given up on collecting from you and has written off the account as a bad debt.
• Collection account. An account in default that the creditor has turned over to a collection agency to attempt to collect payment.
• Delinquent. This term applies to an account when payments are past due; delinquent accounts are typically categorized as 30, 60, 90, or 120 days past due.
• Default. Status when you fail to meet the terms of a credit agreement, particularly failure to pay what is owed.
• Fraud alert. If you have been a victim of fraud or identity theft or have supportable reason to think you may be, you can have a fraud alert put on your credit report.
• Blocked for promotional purposes. You can opt out of inquiries made about your credit report by companies for the purpose of "qualifying" you in order to offer you new credit opportunities (such as "pre-approvals" for a new credit card).
• Consumer statement. If you have disputed information on your credit report, but the CRA upon investigation stands by the report, you have the right to state your side of the case and have that appear in your credit report.

How long does credit information stay in a credit report.

General credit information—good and bad, such as information about individual credit accounts—remains on your credit report for seven years. Only time (not any so-called "credit repair" service) can remove accurate information. Information about most types of personal bankruptcy remains for 10 years. Information about a financial judgment against you remains for the longer of seven years or until the statute of limitations runs out.

What to look for when reviewing your credit report.

First, look for errors, inaccuracies, and incomplete information. Pay particular attention to each individual credit account. According to some surveys, up to 4 out of 5 reports may have errors that could affect your ability to get credit. A few things you might wish to check include:

• Is the account yours? Occasionally someone else's account may be erroneously attributed to you.
• Is the payment status correct?
• Is the account status such as open, closed or inactive correct?
• Is the payment history correct and complete? For example, if payments on an account had been delinquent but you have now paid up and are current with your payments, your credit report should indicate that.
• Are all items, if any, under "Public Record" accurate?

Second, check whether all credit information that reflects positively on your creditworthiness is on your report. Not all creditors report information to the CRAs. Perhaps, for instance, you have a credit card account or installment loan with a local store or lender that you have paid faithfully on time but it is not listed and you would like it added. You can usually request for a fee that the CRA obtain this information (although if the creditor does not report regularly to the CRA the information will not be updated). It's also possible that one of your accounts from a creditor that does report to the CRA has been erroneously attributed to another individual; this is an error that the CRA should correct.

How to dispute errors and make a request for correction

Under the terms of the Fair Credit Reporting Act, both credit reporting agencies and creditors/information providers have the responsibility to correct errors or incomplete information. But first, these businesses have to know that there is an error. That usually means that you, the consumer, must officially inform the CRA and creditor that you dispute the inaccurate or incomplete information. The Federal Trade Commission, one of the federal agencies with oversight of credit matters, instructs consumers to put their complaint in writing to both the CRA and the information provider. State exactly what the problem is; state the facts as you know them and provide copies (not originals) of supporting documentation, and request a deletion or correction of erroneous data. Send your complaint letter by certified mail, return receipt requested, so that you can prove what the CRA received.

The FTC provides a useful fact sheet How to Dispute Credit Report Errors, which outlines the process and provides a sample letter. (All three CRAs also provide an online process for disputing items in your credit report, but we have had no opportunity to evaluate these services.)

After the CRA receives your letter, it must reinvestigate the items you question and also inform the information provider. When their reinvestigation is complete, they must provide the results to you in writing. If they change your credit report, they must provide you a free copy of the corrected report and notify recent recipients of your credit report of the changes. The FTC fact sheet provides a fuller summary of what the CRA and information providers are required to do and what your options are if the CRA investigation does not confirm your claims.

Keeping an eye on your credit report helps protect your financial future

Maintaining good credit is a powerful tool that can help you reach the financial goals you've set for your self and your family. Reviewing your credit report on a regular basis can help ensure that your credit report is accurate and alert you to possible fraud. When you know how, it's easy.

For more information

The Federal Trade Commission offers two good fact sheets cited in this RealityCheck Report:

Your Access to Free Credit Reports

How to Dispute Credit Report Errors

 

Prepared for Elevations CU by Remar Sutton & Associates, October 2005. All rights reserved. Reviewed and updated October 2007.

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