Credit reports and brutal honesty: a rare article.
Most articles about credit reports are either wonky scientists droning on about statistics or a company selling credit reports. This article is neither of those. It’s a genuine overview of credit reports and what you need to know about them.
Our unbiased perspective.
Before we dive into the concept of credit reports, let us address ourselves.
Credzu does not sell credit reports, nor do we advertise for or endorse credit report sellers. By the nature of an escrow agent company (which we are), we are specifically independent of the industry. This is why we feel we can give you good, honest articles about credit-related topics (i.e., credit reports) which you can trust.
Investopedia has the best definition: A credit report is a report that breaks down each aspect of an individual’s credit history. The major credit bureaus (TransUnion, Equifax, and Experian) generate these reports. Then, lenders use these reports to determine your creditworthiness.
Why are credit reports important?
Let’s start with this – why is credit essential? Simply put, credit is a tool that helps an individual get approved for their financial goals. Without any credit, it’s challenging to get approved for financial goals.
So how do lenders view your credit, and what aspects of your credit do they consider? Well, that’s where the credit reports come in. The reports allow a lender to view every aspect of someone’s credit history, which enables the lender to make an informed decision regarding the individual’s creditworthiness.
This report provides a more comprehensive view of credit than the score and it gives the lender more details to determine someone’s creditworthiness.
The credit report goes by many names: credit profile, credit data, and credit file. While all of these names have different nuances, they all refer to the same thing – the credit report.
Creation of the credit reports
The credit bureaus generate the credit files. We discuss a rather complicated process in a different article, but let me summarize it for you.
- An individual gets a line of credit from the bank. They make payments (or don’t).
- These lines of credit are associated with the individual’s Social Security Number.
- The bank records this information.
- The bank reports this information to the credit bureaus.
- The bureaus store all of this information and use it to generate credit reports.
- Credit scoring modelers use the information in the credit bureaus’ report to generate a credit score, which is a different topic.
This is the case for loans, mortgages, credit cards, and even credit applications (whether or not the individual received the credit). Further, this applies to individuals who are added as authorized users on other people’s lines of credit.
Because the process starts with the application of credit (or the addition to pre-existing credit), not every person has a credit file, and thus not every person has a credit report. On the positive side, this is not inherently problematic, but it can be a deterrent for some lenders.
How to read a credit report
Credit reports are complicated and intimidating. There are a lot of different aspects, and they all factor differently into your credit score. Let’s break each aspect down to clarify its importance.
1.) Personal information:
This section typically comprises your name and variation of your name, recent addresses, and employer information. If you have any additional information or alerts on your credit file, those will appear here.
Typically, your personal information does not have any impact on your credit score. However, any alerts in this section will advise a lender on how to treat your file. For example, a fraud alert will inform a lender that you wish to have secondary verification of your identity before credit is issued.
There are many different types of accounts, but each account has the same general information available.
The date that the account was opened. The length of credit history makes up roughly 15% of your FICO credit score and 11% of your Vantage credit score.
Are you making all of your payments on time? That information will be reflected here. This aspect typically accounts for roughly 35% of your FICO score and 40% of your vantage score.
Late payments have a significant negative impact on your credit score and your lenders’ approval rates.
The limit provided reflects how much credit the lender is willing to give you. Unsurprisingly, the higher the limit, the better your debt-to-credit ratio will be. Utilization accounts for 30% of your FICO score and 23% of the VantageScore.
What is the individual’s obligation to pay off the utilization for that line of credit; if you are an authorized user of the credit or the tradeline owner.
Credit Score Models don’t use the responsibility of the individual to influence the credit score. However, too many authorized user tradelines and not enough individual tradelines can deter lenders because it doesn’t show any responsibility for the payments.
A remark on the account shows any additional notes regarding the account. This section includes disputes and settlements.
The status of the account will be shown here. If the account is open, then a lender can expect to see recent information. If an account has been closed, the lender will know who closed the account (bank or the individual) and when the account was closed.
Typically, the open accounts are listed first, followed by the closed accounts.
Contact information for the lender:
This provides you with a way to contact the lender should there be any incorrect information on the report.
Type of Account:
The variety of accounts reflects 10% of the FICO score and 21% of the Vantage score. Lenders prefer to see individuals who can repay various kinds of loans. So whether the line of credit is an auto loan, a mortgage, a credit card, or a utility statement will be recorded here.
There are two primary types of accounts: revolving and installment. Revolving accounts typically have credit that is renewed as the debt is paid. Installment accounts are credit accounts which have fixed payments scheduled until the loan is fully repaid. We’ve listed some types of accounts below.
- Revolving Accounts:
- Authorized User Credit Cards
- Individually Owned Credit Cards
- Installment Accounts:
- Student Loans
- Auto Loans
If you have any collections, they will be listed in this section. Unfortunately, collections usually stay on your credit report for seven years. However, collections can be sold to different agencies, at which point the seven-year period restarts.
Usually, it is a good idea to pay the collection fee, if possible. If that isn’t possible, you can connect with a debt consolidation company that can manage your collections!
Inquiries are recorded near the bottom of the credit report. In short, this section shows lenders how often you are applying for new credit. An inquiry will typically affect your credit score for six months after appearing on your credit report. It will stay on your report for two years.
5.) Public Records
This section allows for other relevant information to be available for the lender. If you have ever applied for a Chapter 7 Bankruptcy or a Chapter 13 Bankruptcy, that will appear here. Additionally, this section will house any tax liens or judgments that are relevant to your credit file. Some states also record foreclosures and repossessions in this section.
This section is critical because it reports the typical “red flags” that can inhibit lenders from offering you loans or credit cards.
Different types of Credit reports
Every credit monitoring company will offer you their credit report. However, that doesn’t mean that the content on the report is different!
In truth, credit monitoring companies offer access to the information directly from the bureaus, so each individual has three main credit reports that they should focus on: their TransUnion, Equifax, and Experian reports!
These three credit reports often contain different information. Ideally, all the information would be the same. However, this is not always the case. Sometimes the bureaus report the wrong information, and sometimes the banks report the inaccurate information to one or more bureaus.
Each bureau is a separate, private entity, so they process their information separately. When processing the information for millions of consumers, this can leave considerable room for mistakes. See our other article about the bureaus and how they process your information if you’re curious about this.
There are a couple of different types of credit reports.
Most people focus on their consumer credit reports when working towards their credit goals. However, these are not the only types of reports out there!
Here are a couple of different types of credit reports:
- Education reports: Sources like Credit Karma provide these reports. The reports are used primarily to educate the individual of what is on their credit report.
Unfortunately, these are not the most accurate sources. The scores associated with these reports are often highly inaccurate, so keep that in mind when monitoring your credit!
- Lender Reports:
- Auto Reports: Auto credit reports typically come from Experian or Equifax. These one bureau reports usually include an Auto Credit Score that can be used to calculate your loan qualification, interest rate, and down payment.
- Mortgage Reports: These reports are often a combination of two or three of the bureaus. They also have additional analyses that provide more indication of how worthy of credit you are.
Since mortgages are such large loans, these reports provide a more comprehensive view of how much of a risk each individual is.
- Business Credit Reports: This report provides information about a business’s creditworthiness. Lenders use these reports to make decisions regarding providing funding for your business.
- Chex Systems reports: This is a banking credit report. It focuses explicitly on any issues or successes that you have had with your checking accounts.
How do you check your credit reports?
Oh – let me count the ways! There are probably hundreds of sites that you can use to check your credit reports.
But not all sites are created equal.
How to get your credit reports:
You can get your credit reports directly from the bureaus: Experian.com, Equifax.com, and TransUnion.com. You can create accounts with these sites, and they will provide you with updated reports, usually for some cost.
You can get your credit reports from several other sites. Here are a few commonly used sites: Credit Karma, IdentityIQ, PrivacyGuard, AnnualCreditReport, etc.
These sites all draw their information from the same bureaus, but they occasionally offer other benefits. Some common benefits include locking/unlocking your credit report, placing or lifting fraud alerts, and dark web monitoring.
Getting a free credit report
Everyone wants a free credit report. But where do you find them?
Experian and Credit Karma offer free reports with periodic updates once you create an account. Both of these sites allow you to monitor your reports over a period of time, and they are usually pretty accurate. However, Experian only offers an Experian report, and Credit Karma only offers TransUnion and Equifax reports.
Additionally, you can get a free three-bureau credit report from AnnualCreditReport.com once a year. This is an excellent tool for someone who isn’t actively seeking new credit but is just looking to check in on their report.
Just remember: you get what you pay for. The free sources offer routine updates, but they are not always accurate. Since these sources rely on advertising to generate income, the credit scores associated with these reports may not be accurate. You tend to see more advertisements and pre-approval offers than other websites.
Paid Credit Reports
Most sources for credit reports do require payment. These third-party sources like MyFICO and PrivacyGuard sell the credit reports directly to the consumers.
Each website sets its pricing. However, credit reports typically start around $30/month.
While no one likes to pay money if they can help it, these sites are not without their benefit. As previously mentioned, these sites often offer services other than just credit monitoring. You can lock or freeze your credit reports, monitor your presence on the dark web, and place fraud alerts so that other people can’t apply for credit in your name.
What credit report should you get?
Well, that depends entirely on what you want!
If you are just looking to check your report for any nefarious activities, then maybe use AnnualCreditReport.
However, if you want to monitor your reports routinely and control who reviews your reports (through fraud alerts or freezes), then you may want to sign up for monthly monitoring through IdentityIQ or PrivacyGuard.
Further, suppose you’re interested in actively disputing the information on your reports. In that case, it may be helpful to create accounts with the bureaus directly so that you can get help directly from the credit monitoring bureau.
Credit Reports Updates and Accuracy
Frequency of Credit Report Updates
Generally speaking, your credit reports update as often as you pay for them (that could be daily with Experian, once a week as with Credit Karma, or once a month with PrivacyGuard).
However, the reports’ information typically only updates once a month when the bureaus update their information.
What does this mean for you? It means that even if you pay seven updates a month, you are unlikely to see much difference between those reports. This is why most services offer monthly updates because more frequent updates do NOT provide any additional value.
You can update your credit reports as frequently as you want, though you usually have to pay for each update. The frequency of the update varies based upon the website. For example, Experian provides daily updates, and Credit Karma typically updates the reports once per week.
But remember what we said earlier – the credit bureaus only update their information once a month, so daily updates don’t necessarily provide many benefits.
Are Credit reports current?
The information on the credit reports is as current as the credit report is. Meaning, if the credit report is from January 1st, then the information on the report was current as of January 1st.
Accuracy and reliability of the reports
The information from the credit reports is very consistent, therefore credit reports are usually quite reliable. This is why lenders choose to use the reports to determine creditworthiness.
Unfortunately, credit reports are not always accurate. A study by the Federal Tradeline Commission found that 1 in 5 Americans has an error on their credit reports. You may have a mistake on your credit report.
In general, it is pretty simple to dispute the inaccurate information on your reports. You can read about the dispute in our Credit bureaus article.
How Credit Reports Are Used
Various companies use credit reports, and each company uses the reports for a different purpose. A general rule of thumb is that a company or institution can only access your reports if they have a legitimate business need to do so.
Thus, the list of who can pull your credit is relatively short. Here is the list of who can pull your credit report and why they can do so.
If you are applying for new credit, or lower interest rates, or a higher credit limit, then your lender will be able to draw your credit. In particular, this applies to auto lenders, banks, mortgage brokers, student loan providers, and anyone else who would provide you with credit.
Utility companies (including cell phone companies) can pull your credit when creating a new account. This provides the company with insight into whether or not you will pay down your account balance.
Additionally, it should be noted that many states prohibit utility companies from denying services due to poor credit. However, a person with poor credit may be required to put down a deposit in advance to provide extra security to the company.
With your consent, a potential employer can pull your credit report. This can only be done with your consent. The report viewed by the employer is not comprehensive, but it does provide them with insight into your payment history and credit usage. Further, some states have laws prohibiting the use of credit checks for employment decisions.
Whether for home, auto, or personal insurance, an insurance company can draw your credit reports. The information on your credit report helps them determine what your insurance rate will be.
Rent is quite expensive, and a landlord has to be sure that a new potential tenant can be trusted to make payments before accepting them. For this reason, they are also able to draw your credit report.
The government can pull your credit if it has a legitimate need. Some situations in which this may be necessary are determining your child support payments or determining if you’re eligible for public assistance programs.
Notice something interesting – you, as a consumer, are not a part of this list!
That’s right; you do not legally have a reason to perform a hard pull on your credit. It seems backwards, doesn’t it? However, you can get around this by using companies or organizations that perform a soft pull on your credit – it’s not the official report. It doesn’t contain all of the personal information associated with the hard pull.
Another key point is that a court order to draw your credit score can be obtained for almost any entity. This isn’t an easy process, and it is highly uncommon, but it can happen.
Which credit reports lenders to use
As is usually the case, the credit report used by the lender usually depends on the lender.
Typically, a mortgage lender will use a tri-merge sync to determine your creditworthiness. This credit report provides the mortgage broker with a comprehensive view of the reports with all three bureaus. This is the most detailed report that can be obtained.
An auto lender will typically draw a credit report from either Experian or Equifax. This report is less comprehensive than the tri-merge sync but is still more thorough than the consumer credit report obtained from a credit monitoring agency.
A bank offering credit cards will typically just pull a credit report from one bureau. The bureau chosen may vary between banks. This is beneficial for you as a consumer because you can choose to apply for a credit card from a bank that pulls the credit reports from a specific bureau.
Credit scores attached to credit reports
The credit bureaus do not provide you with a score directly. However, many credit monitoring sites have their own unique credit score models, and they will include these scores on your credit reports.
Every credit monitoring company has a different model, and similarly, the credit scores can vary from website to website. Even if a site uses the FICO model, it may not be the current FICO model (there are many versions of this model). Additionally, lenders often use a different model called a Vantage score that is different from FICO scores.
All this to say, the credit score you see on your consumer credit report may not be the same as what a lender sees. Because these scores are website-specific, they are not a perfect indication of your credit score.
While they are not a perfect indicator of your credit standing, they do have some merit. Chiefly, you can see relatively where your credit score stands, which can help you develop a plan for improving or maintaining your credit standing! If you want more information on credit scores specifically, then read our article about credit scores.
Don’t like what you see on your credit report? Clean it up!
Now you know everything about your credit report. So what do you do if you don’t like what you see?
Many simple credit hacks can help you with improving the information on your credit score. Here are a couple to start:
- High utilization – pay down your credit utilization to under 30%.
- Dispute inaccurate information – you can file disputes online with each bureau, which could improve your credit.
- Got a small report? Become an authorized user. This could help you grow your credit file!
Certainly, there are many ways that you can improve your credit standing. However, if you have many negative items on your credit report and you don’t know where to start, it could be a good idea to hire a professional. The credit system is messy, but some people know all of the ins-and-outs and can help you clean up your credit report!
You’re practically a credit report expert!
Reading and understanding your credit reports is a daunting task, but hopefully, you have a better understanding of your report now. A few things to keep in mind as you move forward with your financial goals.
- Credit reports show a general breakdown of all of your credit accounts.
- There are many different credit report types, but all credit reports are drawn from the same three sources – TransUnion, Experian, and Equifax.
- There are credit monitoring services that offer free reports, but paid reports often provide additional services.
- Credit reports are not infallible, but they provide a good representation of your creditworthiness to you and any lenders from whom you’re seeking credit.
- If you don’t like what is on your credit reports, you can fix it!
Just keep these five points in mind as you move forward with your financial goals!
Frequently Asked Questions
The information on your report will go only seven years. Information older than that will not be on the report. Inquiries only remain on your credit report for two years.
Credit reports update as often as you pay for them. However, each account on the report updates with the bureaus once a month, though they may update at different times. A credit report takes a snapshot of the data it has at that current time, which may not show the most updated information regarding each account.
Most reports update immediately upon payment. However, the bureaus typically only update the information on the credit reports once a month.
As many as you pay for! Apart from that, it depends on the website you use. Here are some examples:
AnnualCreditReport – one credit report/year
Experian – daily updates
Credit Karma – weekly updates
IdentityIQ – One report/month
It depends on what you want from the report. For some people, the peace of mind can be enough to warrant paying for monthly reports. Others want the reports because they are actively seeking new credit. In these situations, it can be beneficial to have more frequent updates.
If you’re not actively seeking new credit, you likely don’t need frequent updates. In this case, only getting one report per year could be all you need.