What is credit reporting?
Why are your credit reports important?
When can companies check your credit report?
- 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.
What rights do you have under the Fair Credit Reporting Act (FCRA)?
- 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- Outdated negative information can’t be reported.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.
What credit reporting companies exist?
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
3) Tenant reports
4) Check and bank screening
5) Personal property insurance reports
6) Medical reports
7) Low-income and subprime reports
8) Utility reports
9) Retail reports
10) Gaming reports
How can you monitor your credit reports?
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
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.
Andrew is the managing editor for SuperMoney and a certified personal finance counselor. He loves to geek out on financial data and translate it into actionable insights everyone can understand. His work is often cited by major publications and institutions, such as Forbes, U.S. News, Fox Business, SFGate, Realtor, Deloitte, and Business Insider.