What’s In Your Credit Report?

Credit reports are things of mystery to many people. Though these reports are used to gauge credit-worthiness for a range of common consumer lending transactions – and are even used as part of a background check for a potential job – many people don’t know what is in them, or where the information comes from.

The first thing to be clear about is that there is more than one credit report being kept on you. Lenders report your credit activity to four companies in the U.S., including Experian, Equifax, TransUnion and Innovis. Of the reports gathered, the most important are those from the Big Three credit bureaus: Experian, Equifax and TransUnion.

You’ve also no doubt heard about your “credit score.” These scores are produced by the Big Three, as well as a company called FICO – who uses information from the Big Three, (and uses its own powerful software), to create your Fico Score. Not only do the Big Three produce their own scores, but these companies usually have different version of credit scores available.

So, there is not one single credit score being tallied for you; there are several.

Information in your credit reports comes from various sources. As mentioned, the most important information is that which is reported by the lenders with whom you do business. Lender reporting on your payment history, credit utilization and such things as delinquencies and collection activity are the biggest drivers of your credit score (up or down).

However, your report also contains information culled from public records, (including bankruptcy filings, court records of tax liens and monetary judgments). When you apply for credit and the prospective creditor pulls your report or checks your score, an inquiry is recorded on your report.

Want to see what’s in all three big reports? You should, (for reasons we’re about to explain): Just go to annualcreditreport.com and you can pull all three reports, each year, at no charge. Just be careful: the site is full of come-ons for services that will cost you money.

The big reason you should pull all three reports on a regular basis is to check for errors. Remember, the credit bureaus rely on others to provide them with information. Not all of that information is accurate, and negative information that’s put on your report in error can really hurt your credit worthiness. So, you should carefully check your report for errors, and deal with any that you find until the discrepancy is resolved.

Of course, there can also be perfectly truthful information on your report that drags your credit score(s) down. Some of the main things that influence your credit score are:

Payment history – This is the big one, and the reason why you should always strive to pay your bills on time. If you’re even one day late with a payment, it will often go on your report as a 30-day delinquency.

Make sure you check the terms of any credit relationship you have: know the due dates of payments, and know quickly payments are applied. If you are using snail mail, leave enough time for your payment to arrive – and be processed – by the due date. If you pay online, make sure you’re clear on when your payment is going to be applied to your account.

Some companies, (particularly low-end credit cards) charge extra to apply your payment same-day, and will actually ding you for a late payment if you pay on the due date, but they have a policy of waiting several business days to apply the payment. Don’t get caught in this trap.

Credit Utilization – This refers to how much of your available credit you are using. If you have, say, $2,000 of total available credit (across all your accounts), and you have a balance of $200, then your credit utilization is 10%. That would be very good for your score, since lower is generally better. However, if your credit utilization gets over 30% it can start to harm your score, so try to keep it low.

Incidentally, you should always think carefully before you cancel a credit card. When you do so, it can lower the amount of total credit available to you, and thus raise your credit utilization percentage. Sometimes it’s a good thing to keep cards active, even if you’re not using them.

Age of Accounts – As the term implies, this is about how long you’ve had your accounts open. Generally speaking, longer is better.

Account Types – This refers to different types of credit relationships (e.g. credit cards, auto loans, mortgages, etc). Having a variety of different types of credit relationships is generally a good thing for your credit score.

Inquiries – These result from you applying for credit and the potential creditor “checking you out.” Too many of these over a short period of time can hurt your credit score. However, there are some “urban legends” about inquiries, and they are not always accurate.

For instance, a bunch of inquiries (or “hard pulls”) happening over a few days — from a bunch of lenders of the same type — will not necessarily hurt you. This may happen if you are shopping for the best rate on a car loan, or a mortgage. The credit scoring software will “see” that you are shopping, and your score won’t get hurt.

However, applying for a dozen credit cards over a three month period can be seen as you desperately seeking new credit sources because you can’t pay your bills. This type of situation can really pull your score down fast.

There are also “soft pulls” – or credit inquiries that don’t result in an inquiry being officially recorded on your credit report. Soft pulls do not hurt your credit score. Unless a prospective lender is very clear about a soft pull, you should assume that any “feeling out” or application for credit will, in fact, result in a hard pull.

Sometimes, unscrupulous salespeople will tell you they are not doing a hard pull, when in fact they are.

Hopefully, this gives you more to go on in terms of understanding how credit reports work. By all means get a hold of yours soon. Check for any errors, and get a sense of how creditors “see” you. There may be some easy ways for you to make that image more attractive, and save yourself lots of money in the long run.