Credit Report: Everything You Need To Know and Why it is Important?

Credit Report: Everything You Need To Know and Why it is Important?

It may be confusing to understand your credit reports. However, credit reports are essential to a lot of lenders such as banks, mortgage lenders, prospective companies. and more. That’s why it’s important that you understand how to interpret your credit report. In this article, we will discuss everything you need to know about credit and credit reports.

 

What is a Credit Report?

A credit report is a compilation of detailed information about your credit history. This is an important measure of your financial reliability. It measures how you handle credits and pay your debt. A credit report is one of the most important documents in your financial life. 

 

What Information is Included in Your Credit Report?

what is a credit report

Personal Information

Your credit report includes important and personal information like name, address, social security number, and employer. 

Credit Accounts

A credit report includes information about your accounts such as credit cards, auto loans, student loans, and mortgages. This also includes records of late payments, collection, and timelines associated with the accounts. 

What Are Public Records On A Credit Report

A credit report also has information about any court judgment against you, tax liens against property, and even filed for bankruptcy. Here are the following public records that are included on your credit report:

  • Credit inquiries
  • Foreclosures
  • Bankruptcies
  • Civil suits and judgments
  • Child support payments

 

Importance of A Credit Report

A credit report is one of the most important factors in your financial life. This is an important measurement to determine your credit score. Lenders, insurers, and employers may obtain a credit report from the credit bureaus to assess how a person manages financial responsibilities, such as loans and bills. 

 

How are Credit Reports Collected and Obtained?

Credit bureaus and credit reporting agencies collect and obtain information from credit reports. They collect information from creditors such as banks, credit card issuers, or auto-finance companies. Information like public records, property, and court records are also obtained by these credit bureaus. Basically, all the information that is necessary for a credit report is obtained by these people.

These are three major credit bureaus that will collect all your information:

  • Equifax
  • Experian
  • TransUnion

 

Who Is Allowed to See Credit Records?

Since credit reports are full of confidential information, there are only limited people who can access it. It is only limited to these following people:

  • Lenders. They may use your credit report information before deciding to grant you your loan or credit card.
  • Telephone and Utility Companies. These companies may use your credit report to determine if they should provide services to you.
  • Insurance Companies. They may use your credit report information to determine if they will issue an insurance policy for you.
  • Government Agencies. They will use your credit report information in reviewing financial status for government benefits.
  • Employers or Potential Employers. You can agree or disagree to review your credit report information for potential employers.
  • Any Legitimate Business. Legitimate businesses such as landlords may need your information to decide whether they will allow you to rent or not.

a couple looking at a credit report

 

Monitoring Your Credit Report

Monitoring a credit report is one of the things a person should do routinely. It is important to know your credit report and see your finances. Checking your report helps you determine where you stand on your credit score. If you want to improve your credit score, you should at least check your credit report once a year. 

 

Important Reasons You Should Check Your Credit Report

lady holding credit cards while looking at documentsChecking your credit report reflects your overall financial status.

Basically, knowing where you stand with your credit score is an important part of being financially responsible. Credit reports are helpful when you want to apply for an auto loan or mortgage. If you have a better credit score, the lower interest rates will be offered to you. 

Checking your credit report protects you from identity theft. 

Protecting your personal information is one of the measures you should take to avoid identity theft. In any event that you find something unusual, you should report it immediately to the individual credit bureaus. 

Inaccurate information on your credit report. 

It is important that all information in your credit report is accurate. There are times that there could be errors in your report such as wrong address, public records, and payment of bills. These errors can be negatively seen by lenders, employers, and other companies that will evaluate you. 

 

How to Improve Credit History?

Now that you know the importance of credit report and how it could affect your credit score, here are some ways on how to improve your credit history. 

  • Paying bills on-time is crucial in improving your credit history. If you have debt, you should also pay them consistently.
  • You can also maintain reasonable amounts of unused credit.
  • Trying to keep credit inquiries to a minimum helps improve credit records. You should apply for credit only when needed. 
  • Most importantly, checking credit reports annually and disputing any errors that hurt your report improves your credit history. 

 

How To Get A Free Credit Report

You can get one free credit report every twelve months from each of the nationwide credit bureaus—Equifax, Experian, and TransUnion.

 

Credit reports are used to determine a person’s ability to manage finances and pay their debt. Understanding and knowing your credit report is necessary. All the information above is what you need to know. Having a good credit report leads to a good credit score. And the higher the credit score, the more chance that lenders will let you borrow money or loans from them.  

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How To Freeze Your Credit Report

How To Freeze Your Credit Report

Freezing your credit report is the catch-all last stop in security verification for credit. If you suspect your credit has been compromised by identity theft and you want to prevent anyone from fraudulently opening new accounts under your name, a freeze on your report is a great way to do it. 

If you don’t think you’ve been a victim of identity theft, but you have been open to vulnerability due to the action of others or other entities, you may not have to go as far as a complete freeze on your credit report. Freezing your report can be cumbersome, inconvenient, and unnecessary if you’re just looking for added personal financial protection. 

To initiate a credit report freeze, you’ll need to contact each of the three credit reporting agencies, Equifax, Experian, and Transunion, individually. Each agency will charge a nominal fee to initiate the freeze and it may take a few days to go into effect. 

Existing Accounts

By instituting a freeze, you are essentially preventing any unknown person or entity from taking a peek into your creditworthiness. This means new lenders cannot check on your credit. Existing lenders and businesses, however, can. Collection agencies that are hired by existing lenders with whom you have an open line of credit can also look into your credit. 

So while a credit freeze is a great way of preventing new, fraudulent lines of credit from being opened, people engaging in identity theft can still access your existing lines of credit if they have the right information. It is important to monitor your credit transactions and immediately report fraudulent activity to each of your lenders. 

Purpose Of A Freeze

Those who are trying to acquire new lines of credit fraudulently under your name will not be able to do so, as long as you institute a freeze with each one of the three credit reporting agencies (aka credit bureaus). Each institution will require detailed information from you such as name,  contact information, social security, etc. They may also require small fees, the exact amount of which varies from state to state. 

Length Of Freeze

You can determine the length of time you want a freeze to be in place. You can also temporarily lift the freeze for a given period and reinstate it when you need to do so. Just keep in mind that each transaction has a lag time of a few days, so if you are lifting a freeze to apply for an auto loan, for example, make sure you lift it about a week before you apply for that loan. 

PIN Number

Also, you will be assigned a PIN to use to access your credit. You can also place and remove freeze to your credit. This PIN only accesses your credit report. Your spouse or other family members must each conduct their own freezes to their credit report if they feel they are equally in jeopardy of identity theft.

Viewing Your Own Credit

Even with a freeze in place, you will be able to view your own credit. You will be able to access your credit report from each of the three bureaus whenever you need it, whether it’s to evaluate any peculiar activity or just to keep tabs on how your credit is faring. Other organizations that still have access to your credit besides current lenders are government organizations. Though this doesn’t occur often, government agencies such as the court system can look into your credit for necessary purposes, despite your placement of a freeze. 

Initiating a freeze does not prevent you from conducting any of the normal business that involves your credit rating, such as opening a new account, leasing a residence, applying for a mortgage, interviewing with a company, etc. You just have to temporarily lift the freeze whenever you’re looking to conduct new business involving inquiries into your creditworthiness. 

credit report

Alternatives

If you feel like a freeze is a bit more protection than what you’re looking for, consider placing a fraud alert on your credit profile. You can institute a free 90-day fraud alert that will require new businesses to verify your identity first before initiating a new line of credit. This will help deter identity thieves from taking advantage of any personal financial information they have on you. Modes of verification often involve email verification or via text messaged code to your mobile phone. 

If 90 days isn’t long enough, you can also initiate an extended fraud alert that will last seven years. To place an alert, first, you will need to file an identity theft report. And then, contact one of the three credit bureaus: Experian, Equifax, or Transunion. Make sure that the credit agency you have contacted has informed the other two agencies as well. 

Once you have completed the paperwork, your extended fraud alert will remain active for the next seven years. It works just like a 90-day alert. All new credit activity will have to be verified by you before it is allowed to proceed. 

With either a freeze or a fraud alert, you will be able to receive at least one free copy of your credit report per year from one of the three credit bureaus. You will also have added protection and peace of mind from all the vulnerabilities you face as a consumer of our ever-growing e-commerce, digital society. 

Peace Of Mind

Living in this day and age makes protecting your financial privacy an increasingly challenging task to accomplish. But thanks to added protections the credit reporting agencies are offering as a response to this increased risk, you can have some assurance that you may be able to fight the effects of identity theft if you stay vigilant and before they get out of hand. 

Until you need to employ a fraud alert or a credit score freeze, make sure you monitor your credit on a regular basis by signing up for a credit monitoring service or obtaining a free credit report regularly. Knowing your credit is protected in the face of countless security vulnerabilities among major retailers and financial institutions will help you sleep more soundly at night.

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How Often are Credit Scores Updated?

How Often are Credit Scores Updated?

Information is incredibly dynamic these days, financial information in particular. The availability to access information quickly and input new information into existing repositories, lends itself to a fluid data exchange that changes dynamically. However, given the dynamic nature of information, it’s hard to pinpoint when changes to data, such as your credit score, will change.

Credit bureaus information is completely dependent upon a large number of different creditors, all who report data at various intervals and at different times of the month, depending on when they process your credit information. Creditors aren’t even obligated to inform the credit bureaus of these changes if they don’t want to, which is great if you’ve missed a bill or two, but not so great if you’ve been a glowing customer.

Our credit bureaus are operating these days in much the same way, where new available information that comes up is automatically ingested into the credit assessment algorithm and reported to inquiring consumers. Some other types of information that is more routine and systematic, updates on a monthly basis.

 

Types of information updated on credit reports

Dynamic Information

For dynamically obtained information like consumer initiated credit line requests, bureaus update credit scores almost instantaneously, or at least daily most of the time. As soon as anyone makes a credit request for a potential borrower, one of the three credit bureaus runs its credit evaluation mechanism, incorporating instantly any new information about a consumer’s finances that’s been reported by one of it’s suppliers. For example, if you apply for a credit card today, you can see that application transaction reflected in your credit report tomorrow.

What’s unique about this situation is that all three of the major credit bureaus, Equifax, Transunion, and Experian do not necessarily communicate with each other. So some updates may make it to one bureau and not the other. Or if one creditor pulls a report from Equifax, another creditor who pulls from one of the other bureaus will not see that the first one pulled a report at all. Other than that hiccup, all data that comes in to any one bureau is updated as it comes in, usually daily.

Recurring Information

There are segments of credit information profiles that are reported on a systematic basis, usually monthly. This is most often seen in the areas of credit lines where monthly payments are made. Information regarding missed or delinquent payments will be sent to the bureau at the time the monthly billing cycle came around for that particular individual. Other information reported in a more systematic, scheduled way include changes to personal information such as address and telephone number.

From a consumer’s point of view, knowing this little fact about monthly reporting will help someone who is trying to save time applying for a line of credit, especially for major purchases. If you have just recently paid off large balances on cards in hopes of qualifying for a better auto loan rate, then it’s best to apply for the loan after your credit card billing cycle has ended, and you can be sure the information has been sent and processed by the bureaus.

Public Information

Public information such as a civic matter, a bankruptcy, or a tax lien placed against you, will show up on your credit anywhere from a week to months after. Once it makes its way on there, it can remain for a very long time, even up to 10 years.

Negative Reporting

Derogatory information doesn’t stay on your credit report forever, but it does take a while to fall off of the radar. Negative information such as delinquent payments, foreclosures, and bankruptcies all expire on the 7th year anniversary of the original date of delinquency.

 

Mistakes and Discrepancies

Credit bureaus have 30 days to investigate information you send in to dispute any negative information found in your credit report. If you send in new information in the process, then the length of time the bureau has to complete your investigation is extended. Once this period is over, however, if changes or corrections have been made they will immediately be reflected on your report.

Updates That Don’t Affect Credit Scores

It’s quite routine for existing creditors to pull your credit report for systematic reviews. Also, potential creditors may pull your report to consider whether or not to pre-approve you for an offer you did not solicit. In these and similar instances, no change to your credit score is made, even though your report will reflect the activity initiated by these creditors. Since it wasn’t initiated by you, it cannot hurt you.

The best way to see if the actions you’re taking to improve your credit are working is by purchasing a credit monitoring service that can update you in real time of changes and activity to your credit. This way you aren’t left in the dark wondering if the measures

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