If you do not know what a credit report is, you are in a world of trouble.  A clean credit file can save you thousands on interest rates,  can help you obtain the job of your dreams.  Nowadays it is hard to rent a home with a blemished credit file, companies assume that if you mismanaged your credit then you will not be a good employee or a good tenant for that matter.  Now more than ever it is important , to understand your credit file.

There are three major credit reporting agencies within the United States;  Equifax, TransUnion and Experian.  Smaller credit bureau companies, but for the most part this companies obtain their information from the big three.  The Credit Reporting Agencies collect data or information on consumers and then they re-sell this information to organizations or lenders that want to evaluate and individuals credit worthiness.  These credit reporting agencies use formulas that assign a point value to your credit and more often than not a company will either extend credit or deny it, based on your score.  It is important to note that although the big three have their own formula to measure your credit worthiness, the main company that prepares credit ranking is called  Fair Isaac Corporation, named after its founders Bill Fair and Earl Isaac. Fico has been around for almost 50 years, the Fico credit rating is their most well known product.  I will discuss the Fico scoring system in depth in a future Post.

Federal Law provides consumers the ability to receive one copy of their credit report from each of the three agencies annually, and at no charge. It’s a good idea to look it over once a year to make sure there are no errors or omissions.  Contrary to what you might believe, credit files are riddled with errors.  Studies show that a high percentage of consumer credit reports “up to 70 percent”  contain errors, so you should be prepared to see some erroneous information on your credit report.  If you have never seen a credit report, looking at one for the first time can be intimidating. There are abbreviations, numbers and codes that will look like a foreign language at first glance.  I will post another segment, helping you decipher the information contained on a credit file.

Obtaining Credit Reports: In order to get your free credit reports each year, you can go to www.annualcreditreport.com, which is the only authorized source for free annual credit reports. You can obtain your file directly from each credit reporting agency, but they will charge you a fee to obtain a copy of your file.  The only exception is when you have been denied credit or employment due to the information contained in your credit file. If you want to monitor your credit report more often than annually,  you can sign up to a credit report monitoring program, these programs usually offer a tri-merge reports.  Tri-merge reports tend to have more inaccuracies that the reports you get directly from the Credit Reporting Agencies, never dispute an inaccuracy based on the information contained on a tri-merge report.  My suggestion would be to obtain your credit files from Equifax, Experian and Trans Union directly the first time, this will show you the real picture.

Crash Course on Reading and Understanding your Credit Report: Credit reports contain four main categories,  identifying personal information about the consumer, credit history, public records, and inquiries made to the credit file.

1- Identifying  Personal Information: The identifying information should include your name, current and previous address, social security number, alias, place of employment.  In some cases the driver’s license number and spouse’s name might be contained under your personal information.

2- Credit History: The bulk of your credit report consists of details about credit accounts that were opened in your name or that list you as an authorized user (such as a spouse’s credit card).  Account details are supplied by creditors with which you have an account include:

• The date the account was opened, the credit limit or amount of the loan, the payment terms, the balance, and a history that shows whether or not you’ve paid the account on time.
• Depending on the manner in which they were paid, closed or inactive accounts stay on your report for 7 to 11 years from the date of their last activity.

You will find as part of your credit history, individual accounts “revolving credit cards, mortgages, auto loans, installment loans” and their respective partial account numbers.  As a rule of thumb you do not want to owe more than 30 percent of your available credit limit on any revolving credit card at any time.

In general, negative information that is more than 7 years old from date of last activity “10 years for bankruptcies” must be removed from your file.  Also, please remember that the negative information in your credit report does not come from Equifax, Experian or Trans Union; any negative information is reported to the credit bureaus by others that have granted you credit, is included in public record information or reported by collection agencies.

Credit Accounts

• Accounts paid as agreed generally remain on your credit file for up to 10 years from the date of last activity (DLA).
• Accounts not paid as agreed generally remain on your credit file for 7 years from the date the account first became past due leading to the current not paid status.
• Late Payment History generally remains on your credit file for 7 years.

Collection Accounts

• Collection accounts generally remain on your credit file for seven years from the date the account first became past due that led to the account becoming placed with a collection agency.

3- Public records: Matters of public record obtained from government sources such as courts of law  including liens, bankruptcies, and overdue child support, may appear on your credit report. Most public record information stays on your credit report for 7 years.

• Judgments generally remain on your credit file for 7 years from the date filed, whether satisfied (paid) or not.
• Paid tax liens generally remain on your credit file for 7 years from the date released (paid).
• Unpaid tax liens generally remain on your credit file indefinitely.
• A bankruptcy under chapter 7 or 11, or a non-discharged or dismissed chapter 13 bankruptcy generally remains on your credit file for 10 years from the date filed.
• A discharged chapter 13 bankruptcy generally remains on your credit file for 7 years from the date filed.

4- Inquiries: Credit reporting agencies record an inquiry whenever your credit report is shown to another party, such as a lender, service provider, landlord, or insurer. Inquiries remain on your credit report for up to two years.  Hard in inquiries do affect your Fico credit sccore you get hard inquiries, every time you fill out an application for credit.  A large amount of inquiries in a short period of time will almost guarantee that you will be denied credit with a merchant. There are also inquiries called soft inquiries, the Fico scoring model  ignores soft inquiries when they calculate the score.  Promotional inquiries are considered “soft inquiries and they do not hurt your Fico credit score.

What to Do with Mistakes on Your Credit Report: If you find mistakes on your credit report, such as incorrectly reported amounts on an account, or an account that doesn’t belong to you, you can file a dispute. I personally prefer to dispute items via certified, return receipt requested mail.  Many times I have disputed items online, only to find out later that the CRA never allegedly received my dispute.  When dealing with collection agencies, paper trail is king and the more you can document a dispute the better you will be, should you have to sue to Credit reporting agency for continuing to show inaccurate disputed information.

The credit reporting agency must then verify the information within 30 days of your filing the dispute, if they are unable to verrify the information, they are supposed to remove the disputed information.  On the other hand if they find the information to be accurate, and you still disagree you can contact the creditor directly to have it corrected.  There are laws enacted to protect your rights and insure that only accurate information makes it into your personal credit file, however we must constantly monitor our credit file and insure that the information is infact accurate.

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Tags: credit file, credit report, equifax, experian, read credit file, trans union, understand credit file

This entry was posted on Wednesday, March 18th, 2009 at 2:23 pm and is filed under Credit Repair Guides. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.