The Ultimate Guide to Credit Reports

Learn everything you need to know about credit reports to monitor and protect your credit history.

Credit is a key part of financial life in the US. You need it to buy a houseget auto insurance, open a bank account, and much more.
That’s because credit reports reveal your track record. They allow lenders, employers, and other interested parties to evaluate the level of risk you present and determine how trustworthy you are.
So, how do you make sure your credit doesn’t hold you back? A great way to start is to learn exactly how credit reporting works.

What is credit reporting?

A credit report is exactly what it sounds like. It’s a report containing your past credit information. Further, different types of credit reports exist to help in different industries. Various credit bureaus and reporting companies collect information and build the reports. Once built, interested parties with valid reasons can request them.

Why are your credit reports important?

First, if you want to take out a line of credit, lenders will check your report(s).
Second, your credit report can impact the interest rate you receive on a loan. As a result, the better your report, the less you’ll pay to borrow.
Third, other parties may also check your reports, such as potential employers, landlords, banks, utility companies, and insurance companies.
In summary, your credit is a reference that many organizations will check to see if they can trust you. Being so, you want it to be a good reflection of you so you can get what you need.

When can companies check your credit report?

You may be wondering if it’s possible for anyone to check your credit reports. Well, the Fair Credit Reporting Act (FCRA) has created some rules to protect you.
In short, here are the basics:
  • Any party – if you give written permission.
  • Entities with a court order –with a federal grand jury subpoena or court order.
  • Insurance companies – if you have a policy with the company or are requesting one.
  • Utility companies – if you request service.
  • Banks – if you request to open an account.
  • Employers – if you apply for a job and give written permission.
  • Investors – if you apply for capital from an investor.
  • Government agencies – if you apply for a license or other government benefit.
  • Lenders – if you apply for credit or if you have not opted out of pre-approval offers.
  • Landlords – if you are trying to rent property.
So, it is not possible for just anyone to check your reports. They must have a justifiable reason or permission.
But it’s important to note that your permission is not required for pre-qualified credit offers. It is, on the other hand, required for employment purposes.

What rights do you have under the Fair Credit Reporting Act (FCRA)?

You may be a bit concerned about reports that can greatly impact your lifeFortunately, the FCRA helps to promote the fairness, privacy, and accuracy of credit reports by guaranteeing the following consumer rights:
  • Anyone that uses your credit reporting information against you must inform you and give you the details of the agency that provided the information.
  • You have the right to know what is in your credit profile. Being so, you can request one free disclosure every 12 months from each nationwide credit bureau. Further, many specialty consumer reporting agencies also offer one free report per year.
  • Consumers are entitled to a free credit report disclosure under certain circumstances – for instance, if you are on public assistance.
  • You have the right to request a credit score from the credit bureaus.
  • You can dispute incorrect information. In response, reporting agencies must correct or delete it.
  • Access to your file is limited to those with a legitimate need.
  • Outdated negative information can’t be reported.
  • Written consent is required for employers to receive your reports.
  • You can seek damages from violators.
  • You can limit the pre-screened offers you receive for insurance and credit.
So, rest assured, your reports are private, to a degree, and required to be accurate. However, making sure they’re accurate is partly your responsibility.
So, don’t forget to audit your credit reports at least once per year to ensure everything is correct.

What credit reporting companies exist?

What companies create credit reports and where can you find them? Well, you have probably heard of the three largest nationwide credit bureaus: ExperianTransUnion, and Equifax.
However, there are the 10 types of credit reporting companies you should know about.

10 types of credit reporting companies

1) Nationwide credit bureaus

Again, the three largest and best-known credit reporting bureaus are Experian, TransUnion, and Equifax. These companies track consumer information including payment history, credit utilization, credit history length, public records, and inquiries. In addition to your name, address, Social Security number, and credit card or loan account numbers, your credit report contains information on whether or not you’ve ever been sued or arrested, filed for bankruptcy, or failed to pay your bills on time. In addition, it shows whether anyone else has viewed your credit report, such as a bank or credit card company, and when.

Federal law allows you to order one free copy of your credit report from each of these agencies every 12 months. Visit the Federal Trade Commission website for more information on how.

Your credit report paints a picture of your financial health. Based on your credit report, each consumer-reporting agency determines your FICO (Fair Isaac Corporation) score, a number between 300 and 850. The higher your rating – the better your credit – the lower your interest rate.

2) Employment reports

Employment reports are designed to help employers vet potential hires. They often include background checks, credit checks, drug testing, driving record checks, compliance tracking, employment, and education services.

3) Tenant reports

Tenant reports help landlords and property management companies vet potential renters. These reports include tenant rental histories and criminal background checks.

4) Check and bank screening

Check and bank screening reports include a consumer’s check writing history and checking account activity. With this information, banks can prevent fraud.

5) Personal property insurance reports

Personal property insurance reports help companies evaluate risk by providing past insurance claim information, loss information, and driving violations.

6) Medical reports

Medical reports help companies, like life and health insurance providers, vet applicants. They provide information such as medical conditions, dangerous hobbies, and prescription drug history

7) Low-income and subprime reports

Several companies collect credit information on consumers with low-income and/or subprime credit. This information can include payday loan history, rent-to-own transactions, financial services history, and check cashing services.

8) Utility reports

Utility companies vet applicants using these reports, which include past utility account payment history, fraudulent utility accounts, and connection requests.

9) Retail reports

Retail reports include instances of return and exchange abuse or fraud. Consequentially, they can help retail stores prevent consumers from scamming them on returns.

10) Gaming reports

Lastly, casinos and gaming establishments use consumer data reports to identify consumers with a history of check fraud.
Now you know the 10 common types of credit reports. Next, let’s look at the leading credit reporting agencies in the US (source).
Before making a financial move, check the relevant reports to make sure everything is up-to-date. By doing so, you will increase your chances of getting the best terms on your transaction.

How can you monitor your credit reports?

You may be wondering how you can best manage your credit reports. According to the law, you can get one free credit report per year from the three major credit bureaus.

In order to receive your free credit report, you will need your name, current address, Social Security number, and birth date. Additionally, you will need your previous address if you have been living at your current location for less than two years.

Reviewing your credit report annually is the best way to protect yourself against:

  • Identity theft
  • Potentially damaging errors
  • Inability to obtain credit
To get yours, visit AnnualCreditReport.com. Additionally, as you can see in the chart above, many smaller reporting companies offer a free report each year. Just contact them to request it.
To keep closer tabs on your credit, you can hire an expert monitoring service on a subscription basis. As a result, you can get features like unlimited report monitoring, credit repairassistance, fraud protection, and more.
By knowing what your credit report contains you can ensure the accuracy of the information being shared with financial institutions and lenders, and put yourself in a better position to get future credit.
Check out these industry-leading companies that will help you monitor and improve your credit history.

Take Steps to Improve Your Creditworthiness

Based on the information in your credit report, lenders determine how risky it is to extend you credit. However, even if you’ve had problems in the past, you can improve your creditworthiness by taking the proper steps.

Look at your ratio of debt to available credit. Having a number of credit cards with high credit limits may seem like a good thing; however, while it affords you the opportunity to spend more, many lenders will see it as risky. Even though you haven’t used the credit, knowing it is there and available may be a concern.

However, don’t start closing your unused credit card accounts just yet. Having fewer open accounts may actually lower your credit score. Lenders typically like to lend to people who use their credit.

On the other hand your FICO score takes into consideration your available credit. So getting close to your limit may send the wrong message as well. If you have a number of high balances, start paying off the credit cards with the highest interest rates and balances.

Don’t apply for credit unless you need it. It is not helpful to open credit accounts you aren’t going to use. Too many cards might signal a high risk. Besides, each time someone requests your credit report, it is noted in your file. Too many requests may signal you’re looking for credit and can lower your FICO score.

Patiently build your credit history. In the field of credit, longevity counts. Well-managed, long-term credit histories typically lead to lower risk. That doesn’t mean someone with only a few years of credit history is automatically a bad risk. Just know that it may take a few years to build the kind of credit history that you can be proud to have.

Reviewing your credit reports and understanding how credit works is an important step toward becoming financial independent. Be sure to stay alert and manage your credit and credit reports responsibly.