You need to know what’s in your credit report before you apply for a mortgage, a credit card or a personal loan. A detailed statement of your past and current credit activity, your credit report is an important factor that lenders and creditors consider when deciding whether to approve you for credit and the interest rate they will charge you. There are three credit reporting bureaus in the United States, so anyone with a credit history has more than one credit report.
Key Takeaways:
- Your credit report is a detailed account of your credit history.
- Lenders use your credit report to assess your creditworthiness.
- Regularly checking your credit report will help you correct any errors.
What Is A Credit Report And Why Is It Important?
Understanding what a credit report is and what it contains is important because lenders look at it when deciding whether to approve you for a loan. A credit report includes all your relevant credit history and your credit score, which is a three-digit number representing your creditworthiness. Credit reports generally report negative information for seven years and bankruptcies for 10.
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The Three Credit Bureaus
The three credit bureaus in the United States are:
- Equifax
- Experian
- TransUnion
Each bureau collects its own information on your credit use and calculates its own credit score. Each bureau calculates credit scores differently, so your score may vary from agency to agency.
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How To Obtain Your Credit Report
Federal law allows anyone to get one free credit report a year from each bureau. The website AnnualCreditReport.com lets you request these reports, which do not include your credit score.
In 2020, the credit bureaus began offering weekly free credit reports through AnnualCreditReport.com.
You also can order copies of your credit report and credit score from each bureau for a fee.
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What’s In A Credit Report?
A credit report documents your credit history. Lenders and employers will review your credit report to evaluate how well you’ve handled your finances before approving you for new credit or a job.
Personal Information
Personal details typically included in your credit report include:
- Your full name, plus any nicknames or previous names you’ve used
- Your current and former addresses
- Your date of birth
- Your Social Security number
- Your phone number
- Your employment history
Credit Accounts
The bulk of a credit report documents your credit accounts. Mortgages, credit cards, student loans, car loans, and personal loans are all examples of what information is included in credit reports.
For each account, your credit report will include:
- Your credit limit or loan amount
- Your account balance
- Your payment history
- The dates you opened and closed the account
- The creditor’s name
Collections
If a creditor refers your account to a collection agency, it will appear on your credit report. Collections will reduce your credit score, making it harder to get additional credit.
Public Records
If you filed for bankruptcy, that’s public information and it will appear on your credit report. A bankruptcy will severely affect your credit score and make it difficult to get new credit. Credit bureaus no longer report liens and civil judgments.
What Is An Inquiry On A Credit Report?
Your credit report also lists all requests for your credit history and score. Inquiries can be hard or soft.
What Is A Hard Inquiry On A Credit Report?
A hard inquiry is when a lender requests your credit report because you’ve applied for credit, such as a loan, credit card or mortgage. Hard inquiries reflect your applications for credit. Too many hard inquiries may reduce your credit score. A hard inquiry may stay on your report for two years but only affects your credit score for one.
What Is A Soft Inquiry On A Credit Report?
A soft inquiry is a credit report request unrelated to an application for credit. Examples include checking your own credit report or if an existing lender wants to review your credit. Soft inquiries have no effect on your credit score.
How Your Credit Report Affects Your Credit Score
Your credit score is a three-digit number between 300 and 850, which reflects how you’ve handled credit in the past. The information from your credit report is used to calculate your score. Higher credit scores are better than lower scores.
Credit scores are divided into ranges.
- Excellent credit: 800 to 850
- Very good credit: 740 to 799
- Good credit: 670 to 739
- Fair credit: 580 to 669
- Poor credit: 300 to 579
How Credit Scores Are Calculated
Credit bureaus use two models for calculating credit scores: FICO and VantageScore. Both weigh common aspects of your credit history in their calculations. These include:
Payment History
Your payment history shows whether you pay bills on time and how often you’ve been late in paying your bills. On-time payments make you a more attractive borrower. If you have late payments, they can stay on your report for up to seven years.
Length Of Credit History
Credit score calculations consider how long an account has been open and the last time you’ve used specific types of credit accounts. The longer you’ve had credit, the better.
Types of Credit Accounts
While it’s not one of the major factors affecting your credit score, the types of credit accounts you have opened is important. A good mix of accounts gives lenders more insight into how you handle debt.
Recent Credit Inquiries
Having more hard inquiries on your credit report suggests you rely too much on credit and may be living beyond your means. As such, it could hurt your credit score.
Credit Utilization
Credit utilization is the amount of your available credit you’re using. If you have a $10,000 limit on a credit card and have charged only $2,500, your credit utilization ratio is 25%. The lower the ratio, the better.
How Is A FICO Score Calculated?
The formula for a FICO score weighs the information in your credit report like this:
- Payment history: 35%
- Amounts owed: 30%
- Length of credit history: 15%
- New credit: 10%
- Credit mix: 10%
How Is A VantageScore Calculated?
VantageScores weigh the data in your credit report this way:
- Payment history: 41%
- Depth of credit: 20%
- Credit utilization: 30%
- Length of credit history: 15%
- Recent credit: 10%
- Credit mix: 10%
- Balances: 6%
- Available credit: 2%
How To Understand Your Credit Report
When reviewing your credit reports, look for errors and take steps to correct them. Common errors found in credit reports include:
- Identity errors. This includes incorrect addresses, phone numbers or names associated with your credit history. You may find that another person’s information has been mixed accidentally with yours due to the similarity in your names. There also could be incorrect accounts listed in your report because of identity theft.
- Account errors. Check your credit report for accounts you’ve closed that may still be reported as open. There may also be accounts reported as delinquent when they have been closed or paid on time. The same debt also may be listed more than once.
- Data management errors. You may find accounts with an incorrect current balance or credit limit.
How To Correct Errors
Contact the credit bureau to report the incorrect information. They may require you to complete some paperwork to that end.
Once the credit bureau receives your dispute, it typically contacts the creditor who reported the information for a response. The credit bureau has 30 days to respond in writing about its findings and any corrections it agrees to make.
If this doesn’t get the desired results, try contacting the company that reported the item to the credit bureaus. Companies that supply information – banks, landlords, credit card companies – are called furnishers. If a furnisher provided incorrect information to a credit bureau, you can dispute that item. It helps to supply statements or payment records that support your correction.
Tips For Maintaining A Healthy Credit Report
Maintaining an accurate and healthy credit report doesn’t require much time. You can request all three of your credit reports at AnnualCreditReport.com, which offers free weekly credit reports from all three credit bureaus. If you see any errors, dispute them as soon as possible.
Checking your credit report is also helpful to see what may be affecting your credit score. To keep your credit score in good shape, you can follow several best practices:
- Make consistent on-time payments
- Keep your revolving credit balances low
- Think carefully before applying for new credit
- Consider keeping your oldest credit account open for as long as possible
FAQ
Here are answers to common questions about credit reports.
The Bottom Line
Understanding what’s in a credit report is key to understanding how a lender views you as a borrower and why you may or may not get approved for a mortgage. The Fair Credit Reporting Act gives you access to a free credit report from each credit reporting bureau, so be sure to review your info before applying for a loan.
Holly Shuffett contributed to the reporting of this article.
Sarah Li-Cain
Sarah Li-Cain is a writer and a candidate for the accredited financial counselor designation, with bylines in major publications such as Business Insider, CNBC Select, Forbes and Yahoo Finance. Her expertise includes topics in the banking, credit, mortgage and small-business industries.
