I’ll be doing some “Back to Basics” stories for the folks at Insedia.com. The series starts today with perhaps the most basic — but most important — element of personal finance in our credit-driven economy. Here’s my quick-and-dirty guide to dealing with your credit report.
What is it and where do you get it
- Go to annualcreditreport.com
Your “credit report” is chiefly a record of all your interactions with banks and creditors, with a focus on how reliable you were in the past at paying your bills on time. Generally, American adults have three credit reports, each maintained by the three main credit bureaus: Equifax, Experian, and Trans Union. I put “credit report” in quotes because there is no one credit report – most adults have dozens, if not 100 or so. The report consumers see when they request it is properly called a “file disclosure.” The report a mortgage seller might see about you is different than the file disclosure you get to see. Also, while the most critical file disclosures involve the big three credit bureaus, there are many other file disclosures that consumers have the right to access, and should. These so-called “specialty credit reports” involve your health insurance claims history, or your rental history, or our employment history, or many other critical data elements from your past. You can learn more about specialty credit reports here; today, we are going to focus on what most people call their credit report.
The first and most important way to deal with your credit report is to see it. Make sure you see the right one, at the right price (free!). You do this by going to AnnualCreditReport.com, a federally-mandated website that forces the big three credit bureaus to give you a credit report for free every year. Plenty of places will offer you a “free” credit report, with strings attached. But the place to get your annual free credit file disclosure is AnnualCreditReport.com. (If you fail the online authentication procedure, you might have to call or mail in your request.)
- A report, not a score
A credit report is not a credit score. When you get your file from AnnualCreditReport.com, you are not getting a credit score, you are getting a credit report. These are two different things. A credit report is a detailed list, sometimes pages long, of information about you and your credit accounts. A credit score is a single 3-digit number that tries to predict your likelihood of paying future bills, using facts from your report as the basis for a secret calculation. We will talk about what you can do to deal with your credit score in a future column.
What’s in it
- Personal information section
This is the boring part of the report, but it’s important. It will reveal the name(s) attached to you (you might have several. I have Robert, Bob and Bobby). Your addresses. Your birthday. Perhaps employment and spouse information. Mistakes in this area might not seem important, but they can be. If your name or address is wrong, your information could ultimately be blended with someone else’s credit report, leading to what is called a mixed report. So check it for accuracy and be a stickler.
- Public records section
This area lists publicly available information that the credit bureau knows about you, largely via court proceedings, like tax liens or lawsuits. Again, be alert to something appearing here that shouldn’t be. We’ll discuss disputing errors in a moment, but this section deserves special mention here because if there’s a public records mistake, you won’t have much luck fighting with the credit bureaus about it. You’ll have to go to the creator of the record – the courthouse, for example – and get it fixed at that level.
This is the meat of the credit report. This section will list perhaps dozens of credit accounts you’ve had, dating back to your earliest credit card or student loan. Both open and closed accounts will be listed here. This is where the “black marks” live. Accounts with black marks might note that you were 30 or 60 days late paying a bill. (What happens then? Ultimately, borrowing becomes more expensive). Black marks generally live to haunt you for seven years.
The accounts section includes lots of other deeply personal details about your life, too, like the outstanding balance on an auto loan or the credit limits of your credit cards. All these elements go into the big formula that produces your credit score. Other kinds of financial accounts, like savings accounts, might also be listed here.
This section of a credit report can be confusing; it’s perhaps the least important, but can cause the most heartache. If credit card firms or car dealers ask about your credit in anticipation of doing business with you, those “inquires” will show up here. Both “hard” and “soft” inquiries, or “pulls” are listed. A “hard” pull occurs when you tell a car dealer you are interested in getting a car loan from them. A “soft” pull happens when a credit card company wants to market a credit card to you (and didn’t even ask!). Hard pulls can impact your credit score, but not very much, unless there are multiple hard pulls from different kind of lenders within a short span of time. To creditors, that can indicate that you are suddenly in financial trouble. Soft pulls have no impact.
What do I do with all that?
- Black marks
A shocking number of credit reports have errors. A Federal Trade Commission study published in 2013 found that 1 in 5 consumers had a mistake on their report, and 5 percent of consumers had an error in their reports big enough that it could impact their ability to borrow money (by making it more expensive). So mistakes matter. The study results suggest that many mistakes are small, such as a misspelled street address, but plenty of other mistakes are costly…in a few cases, enough to cost consumers 250 points on their credit scores. Critical mistakes involve accounts reported as late that are actually up to date, or accounts that don’t actually belong to a consumer but appear because of identity theft, or debts that have been paid off that are listed as unpaid. Your main task is to scour the report for these mistakes.
- Learn how to file disputes.
When you find a mistake, you must file a dispute with the credit bureau that issued the report. A dispute is a formal legal process defined by the Fair Credit Reporting Act. Fortunately, disputes are much easier to file today than in the past. They can be filed online — two of the bureaus actually require it.
To get you started, here are the links for each bureau’s online dispute process:
It’s common for a mistake to appear on all three reports. While the bureaus are supposed to share information about disputes, it can be worth filing with each firm. Once a dispute is filed, the bureau will go to the financial institution that placed the item on your report – legally referred to as the “furnisher” — and ask it to verify the information. If the furnisher can’t verify it, it has to be removed from your report. If the information is verified, then you can take the additional step of disputing the item directly with the furnisher.
- Ongoing monitoring
Now that you understand the importance of the report, the likelihood of errors, and the struggle to correct it, hopefully you’ll understand it’s not enough to look at the report only once. You should check your credit report often, at least once every year — more often if you are considering a big purchase, like a home or a car. The day you get your report, set up a system that helps remind you to look at again next year, like this: “It’s daylight savings time! Set the clocks forward, change the smoke detector battery, and get the credit report!”
- Study up
While they all do the same thing, credit reports can take many forms. Familiarize yourself with them by looking at the sample reports provided by each bureau. You’ll see how different they are, and they won’t look so foreign when you get your own. Here are sample reports provided by each bureau.
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