Facts You Didn’t Know About Your Credit
At Mills Realty, we deal with credit reports daily. Your credit report may be more important than you think. Do you know how to protect it?
Citizens of Illinois owes about $154,936,955,000. That is about 12,062 per citizen. it all starts with one digital record called “the credit report”.
With so many ways and opportunities to purchase new products and services with no cash up front, it has become difficult as ever to resist the temptation to buy that new flat screen or that new car.
That’s why I wanted to put together this guide with everything you need to know about your credit report. I’ll cover the credit report basics as well as some of the most common questions.
This is why we put together this information to help individuals understand what is a credit report, what it consists of and what effects the information on the report.
We put together a lot of information. Information like what’s on the average credit report, some credit report misconceptions and what kind of credit score do you need to get the best rates.
What is a Credit Report?
A credit report is a comprehensive report of a person’s credit past. Credit bureaus such as TransUnion, Equifax, and Experian collect data information and create credit reports based on that information, and creditors use the reports along with other details to determine loan applicants’ credit trustworthiness. In the United States, the three major credit reporting bureaus. Each of these reporting bureaus collects information about consumers’ personal facts and their bill-paying behaviors to create a unique credit report; although most of the information is similar, there are often small variances between the three reports.
When you apply for creditors, creditors need something on which to make their conclusions. They need some kind of an idea about the likelihood there is a high probability that you will repay the loan to determine whether to approve your application and what interest rate to charge you.
The information is collected by the 3 bureaus and is very helpful to businesses because it is impossible for to keep credit information on everyone. These three companies collect financial information about you from creditors to put it all together in one report.
Some creditors will report your information to all three credit report agencies while others report to only one. So instead of just one report, you actually have three credit reports.
The three credit bureaus are:
Equifax Credit Information Services, Inc
Address: P.O. Box 740241
Atlanta, GA 30374
TransUnion LLC Consumer Disclosure Center
Address: P.O. Box 2000
Chester, PA 19022
Experian National Consumer Assistance Center
Address: 475 Anton Blvd.
Costa Mesa, CA 92626
A credit report lists your payment history along with financial accounts for each. Each account displays how much you owe and your credit limit as well as the type of credit and when you opened the account. There are 4 types of credit that will be seen on the report. The 4 are:
- Revolving Credit (Most credit cards are a form of revolving credit)
- Service Credit (electricity, cable, gas, phone bills etc.)
- Charge Credit you are given a maximum credit limit, and you can make charges up to that limit. Each month, you carry a balance (or revolve the debt) and make a payment)
- Installment Credit (With installment credit, a creditor loans you a specific amount of money, and you agree to repay the money and interest in regular installments of a fixed amount over a set period of time)
Your credit information contains records about you that lenders often consider when making decisions about your creditworthiness. Whether you’ve known it or not, information about your credit activity has been collated and recorded by the credit bureaus for use in future credit decisions. When you know what your credit information contains – and how it should look – you can begin to see how your actions play a role in your credit information.
Information that goes into a credit report
Credit reports often contain the following information:
Personal information. The report lists:
- Your name and any name you may have used in the past in connection with a credit account, including nicknames
- Current and former addresses
- Birth date
- Social Security number
- Phone numbers
Credit accounts. The report lists:
- Current and historical credit accounts, including the type of account (mortgage, installment, revolving, etc.)
- The credit limit or amount
- Account balance
- Account payment history
- The date the account was opened and closed
- The name of the creditor
Public records. The report lists:
- Civil suits and judgments
A credit report does not contain information data on arrest records, specific purchases, or medical records. The reports may also include information on overdue child support provided by a state or local child support agency or verified by any local, state, or federal government agency.
Inquiries. The report lists companies that have accessed your credit report.
Collection items. The report lists unpaid debts that have gone into collection.
Carefully check your report to be certain these are accurate. Review this information carefully to make sure it is correct. If you have a problem with credit reporting, you can submit a complaint with Experian, Equifax, and Transunion. Contact all 3 and utilize every resource they have to asset you.
Credit Report Example
Your credit report also contains court judgments against you and some personal information.
Having all your credit information together makes it easier for creditors to make a loan application decision. Getting a loan at a low rate isn’t the only thing your credit report is used for and it’s more important than you may think.
Why is a Credit Report so Important?
Credit reports are used to determine your credit score, a number between 300 to 850 developed by the Fair Isaac Corporation (FICO). I’ve put together a detailed credit score guide in another post but basically, a history of on-time payments on your credit report increases your score while bad marks on your report will decrease it.
Your credit score and the information on your credit report will determine whether you get approved for a loan and the interest rate on the debt.
Every lender has its own standards for cut off credit scores for loans and how much interest to charge. Some banks will only extend credit to people with excellent scores while others specialize in loans to even the riskiest borrowers.
I’ve used data on peer-to-peer loans to show the average interest rate for different credit score ranges.
An interest rate of 7% on a $20,000 loan means approximately $1,400 a year in interest. That same loan at the 26.5% rate would mean the interest of $5,300 during the first year and more than $16,284 in total interest payments on a five-year loan.
Your credit report is more than just a way to get loans though.
- Employers may pull your credit report during the hiring process. This is especially common for jobs in banking or financial services
- Insurers use an Auto Insurance Credit Score based on your credit report and people with bad credit pay an average of 91% more for insurance
- Potential landlords look at your credit score along with a rental application and may deny you if you’ve had past evictions or problems paying bills on time
Bad credit can lock you out of the financial system and mean thousands in additional interest on loans.
Credit Report Myths and Misconceptions: What’s not in your credit report
There are a lot of misconceptions about credit reports, what they include and how they’re used. The Fair Credit Reporting Act (FACT) regulates what goes on your credit report and how it can be used by creditors and others.
There’s a wide range of information that is not in your credit report, some of which cannot be used to determine loan approval or interest rates.
Some information that is not in your credit report:
- Race, gender or religion– It’s against the law to deny anyone a loan based on these or other personal information like age or ethnicity
- Marital status
- Age– Your age is not on your credit report but the length of time you’ve had credit is
- Salary– Income is not on your credit report but is asked on most loan applications
- Employer and employment history– Employment history is another one that is not on your credit report but is asked and used on loan applications
- Interest rates on loans– Creditors can’t see how much interest you are paying on other loans
- Participation in credit counseling– Credit counseling or other debt services are not released on your credit report
Creditors have fought to include more information on credit reports and are slowly adding other types of data. Some of the information below may be reported by one of the credit bureaus but not others and in some states.
Some things you didn’t know where on your report:
- Evictions– These are on your credit report in the form of public records or court judgments against you
- Child support payments are generally only reported when delinquent and reported by the municipality or collection agency
- Some utility and cell phone payments are also reported on your credit if they are delinquent or go to collections
A lot more things go on your credit report when you are late or default on your payments. It’s important to keep up to date with payments and keep them off your report!
What’s the Average Credit Report Look Like?
You won’t find much for ‘average credit report’ on the internet because the information isn’t often reported by credit bureaus or creditors. I took borrower information from Lending Club loans, which includes credit report data, to see what the average credit report looks like in America.
- Credit history of 17 years though 14% of Americans have less than 10 years’ credit history
- Approximately four in ten (39%) have had at least one credit inquiry in the last six months and 3% have had three or more inquiries
- The Average American has 12 open credit lines and a credit card balance of $16,368 and owes nearly $146,000 including mortgage and student loans
- Of those with a credit card balance, the average percentage of their credit limit used is 51%
- Two in ten (20%) have at least one derogatory public record on their credit report and one in ten (13%) have filed bankruptcy in the last 10 years
- Just over two in ten people (21%) have at least one delinquency in the last two years. Most (79%) have no delinquencies but 3% have three or more.
- Those with a delinquent account in collections on their credit report owe an average of $4,600 on the account
- The Average American has a debt-to-income ratio of 21% which means two of every $10 they make goes to paying the debt.
There is a lot more available on the average credit score which is around 695 as of January 2017. One in ten Americans (14%) have no credit score, mostly younger adults that have never used credit. A third of Americans (31%) have credit scores below 660 which are the cutoff for sub-prime credit and have extreme trouble getting loans with good rates.
The financial crisis destroyed a lot of credit reports but scores are slowly creeping back up as missed payments and bankruptcies fall off.
Most Common Credit Report Errors
Books-worth of information is collected in credit reports every day and there is bound to be mistaken. The Federal Trade Commission estimates that one-in-twenty (5%) of credit reports have errors though other estimates put it as high as one-in-four reports.
Just one missed a payment on your credit report can decrease your credit score by 90- to 110-points and mean thousands in additional interest payments on new loans. That means it’s critical that you catch any credit report mistakes as soon as they appear.
Errors can go on your report for a number of reasons from mistakes in reporting by creditors to errors made by the credit reporting agencies themselves. A new case of identity theft is reported every two minutes in America, causing havoc for borrowers.
Some of the most common credit report mistakes include:
- Mistaken or Fraud Accounts– Check each account on your credit report to make sure it’s yours. Mistaken accounts from people with same name or living at the same address are common after you’ve changed addresses.
- Outdated personal information– It’s important to check your personal information in each of the three credit reports each year, especially after you’ve moved.
- Wrong account details– Check specific information in each account on your credit report including credit limit and missed payments. Typing errors by creditors are some of the most common credit report mistakes and can destroy your credit. Also, make sure that each credit account is labeled as the right type of debt.
How Does Bankruptcy Affect Your Credit?
Sometimes it can’t be avoided but filing bankruptcy is one of the biggest mistakes that will destroy your credit score. Chapter 7 bankruptcies can stay on your credit report for up to ten years and lock you out of the financial system.
The table below shows the estimated impact to your FICO credit score from different derogatory accounts.
You can see that a bankruptcy hits credit scores the hardest, decreasing your FICO score from 130 points to as much as 240 points. If you are able to get a loan, the interest rate will likely be extremely high and might just make matters worse.
Filing bankruptcy tends to hit people with higher credit scores harder because they have further to fall. Someone with excellent credit could see their FICO score fall more than 200 points after a bankruptcy. No matter how far your score falls after bankruptcy, it will be well below the sub-prime cutoff and will be a long time before you’re able to get decent rates again.
How Does a Missed Payment Affect Your Credit?
Being late on a credit card payment will not generally affect your credit score. Most credit card companies have a grace period before they report late payments on your credit report. You will have to pay a late fee but can usually avoid a hit to your score if paid within 30 days.
Being late for more than 60 days will be reported to the credit bureaus and can have a big effect on your credit score. The table above shows the effect of late mortgage payments but the same can be said for other types of debt.
Just one late payment of 90+ days can send even the best credit histories into sub-prime territory. Every 1% increase in interest means an extra $2,000 in interest on a $25,000 loan paid over ten years!
How Does an Eviction Affect Your Credit?
An eviction notice doesn’t go on your credit report but if it goes to court, the ruling against you will be reported to the credit bureaus as a public record. A public record stays on your credit report for up to seven years and is very difficult to get removed.
- Public records and other derogatory items on your credit report will decrease your FICO score and mean higher interest rates
- Many potential employers, especially for jobs in finance or banking, look closely at your credit report. Public records could be red flags and keep you from getting a job. The worst part is that many won’t say anything about it during the interview or will wait to after an interview to pull your credit, giving you no chance to respond.
- Having public records on your credit report for eviction can make it difficult to get approved on rental applications in the future
7 Critical Steps to Protect Your Credit Report
Cleaning up your credit report and improving your credit score can be frustratingly slow. It will first make changes in your credit report time to get reported. It can take years to recover your credit score after missed payments or other bad marks.
The table below from FICO shows an average of how long it takes to recover your credit score after different derogatory marks.
Again, bankruptcy takes the longest to clear from your credit report and for your score to start recovering. Even for minor missed payments though, it can take almost a year to get your credit score back.
- Check your three credit reports at least once a year for errors
- Write to the credit reporting agencies to remove any mistakes
- Try keeping your credit utilization ratio, your credit balance compared to limits, under 30%
- Set reminders so you make on-time payments
- Don’t avoid credit but don’t use so much that you can’t pay the bills
- Avoid multiple hard-inquiries before applying for another loan
- Don’t close credit accounts before applying for a loan
Whether you use credit often or plan to apply for a loan, your credit report is more important than you think. From rates on loans to get a roof over your head, your credit report is a factor in many aspects of your financial life. Since it can take years to recover your credit score after a bad mark, it is very important to protect your credit report.
Steps to take to fix a reported issue
What to look for
Review your credit report
What should I look for when I review my credit report?
Make sure that you recognize the information on your credit report including your personally identifiable information, such as names, addresses, Social Security Number, accounts, and loans. Then check that the other information on your credit report is accurate and complete. If you find information that you believe does not belong to you or is not correct, contact the business that issued the account or the credit reporting company that issued the report.
What to look for
Filing a dispute
What should I do if I find information that is inaccurate on my credit report?
Federal law allows you to dispute inaccurate information on your credit report. There is no fee for filing a dispute. You may submit your dispute to the business who provided the information to the credit reporting company and/or to the credit reporting company who included the information on your credit report.
The Federal Trade Commission’s website has information about how to dispute errors on credit reports, and the Consumer Financial Protection Bureau’s website provides additional guidance about disputing information on credit reports.
How does the dispute process work?
If you submit a dispute to a nationwide consumer credit reporting company, the company may make changes to your credit report based on the documents and information you provided. Otherwise, they will contact the business reporting the disputed information, supply them all relevant information and any documents you provide with your dispute, instruct them to investigate your dispute, and:
- Review all information you provided about your dispute
- Verify the accuracy of the information they are reporting to the credit reporting company
- Provide the credit reporting company with a response to your dispute, including any changes to the information reported
- Update their records and systems as necessary
- The credit reporting company will then notify you of the results of the investigation
If you submit a dispute with a business, they will conduct an investigation and will send you the results of the investigation directly. They will notify the credit reporting companies of any changes that need to be made to the information as a result of the investigation.
If a dispute results in a change to your credit report, you will have up to 12 months to order a second free report through AnnualCreditReport.com in order to review the changes.
How do I submit my dispute?
To submit a dispute to a credit reporting company, contact the credit reporting company who has the inaccurate information on your credit report. You may submit a dispute with each of the credit reporting companies over the internet or by mail.
- Equifax – www.equifax.com/CreditReportAssistance
- Experian – www.experian.com/acrdispute
- TransUnion – https://dispute.transunion.com
- O. Box 740256
- Atlanta, GA 30374-0256
- O. Box 9701
- Allen, TX 75013
- O. Box 2000
- Chester, PA 19016
You may also submit documents in support of your dispute. Documents may be uploaded for online disputes or submitted by mail. When mailing documents, please only submit copies of documents and not originals. Documents will not be returned to you following the investigation.
To submit a dispute with a business:
- Contact the business directly. The contact information for that business should be included on your credit report or monthly billing statement.
The Federal Trade Commission’s website has more information on correcting your credit report, and the Consumer Financial Protection Bureau’s website also provides additional information on disputing information on your credit report as well.
What information do I need to provide when submitting a dispute?
Types of information you should be prepared with:
- Your full name, including middle initial and suffix, such as Jr., Sr., II, III
- Social Security Number
- Date of birth
- Current address
- All addresses where you have lived during the past two years
Depending on how you submit your dispute (through the internet or by mail), you may also be asked to provide the following additional information:
- Email address
- A copy of a government issued identification card, such as a driver’s license or state ID card
- A copy of a utility bill, bank or insurance statement
You should list each item on your credit report that you believe is inaccurate, including the creditor name, the account number and the specific reason you feel the information is incorrect.
You may also submit documents to support your dispute. Depending on the type of information disputed, the following documents may be helpful in resolving your dispute:
- Police reports or an FTC Identity Theft Report, showing that an account was the result of identity theft
- Bankruptcy schedules showing that an account was included in or discharged in bankruptcy
- Letters from creditors showing how an account should be corrected
- Student loan disability letters showing that a student loan has been discharged due to disability
- Cancelled checks showing that a collection account has been paid
- Court documents regarding public records
What steps can I take if I have mistakenly been reported as deceased?
If you have been mistakenly reported as deceased, you should contact the credit reporting companies using the contact information provided below:
- O. Box 740256
- Atlanta, GA 30374-0256
- O. Box 9701
- Allen, TX 75013
- O. Box 2000
- Chester, PA 19016
How long will it take to complete the investigation?
You will need to allow up to 30 to 45 days for the investigation of your dispute to be completed by the credit reporting companies.
The Consumer Financial Protection Bureau has additional information regarding the length of a dispute investigation.
What steps can I take if I do not agree with the dispute investigation results?
If you still believe that the information on your credit report is not accurate following your review of the investigation results from the credit reporting company, you have several options:
- You may contact the creditor that reported the information to the credit reporting company and dispute it directly with them. If you wish to obtain documentation or written verification concerning your accounts, please contact your creditors directly.
- You may provide additional information or documents to the credit reporting company relating to your dispute.
- You may request a brief statement be added to your report. Your statement should be specific to your dispute of credit information.
- You may file a complaint about the credit reporting company, or the business reporting the item, with the Consumer Financial Protection Bureau or your State’s Attorney General’s office.
Inaccuracies in reporting
How do credit report errors happen?
Credit report errors can happen when data entry errors are made by a creditor who supplies account information to a nationwide consumer credit reporting company. They can also happen when a person is a victim of identity theft or when people have common names, and similar Social Security Numbers, birth dates, or addresses.
How can I prevent errors on my credit report?
Monitoring your credit report regularly is the single best way to spot errors. You can review your credit report from Equifax, Experian and TransUnion for free once every 12 months through this website and you can dispute any inaccuracies for free.
When applying for credit, always provide as much personal identification information as possible on the credit application. If you prefer to go by a nickname, be sure to stay consistent, but be aware that the more name variations in your credit report, the more likely errors can happen.
Make sure your creditors have current and complete address information for you.
Examine your bills carefully to make sure that the charges are yours and that balances are correctly shown.
Can companies that promise to clean up my credit report really do that?
The Federal Trade Commission (FTC) and the Consumer Financial Protection Bureau (CFPB) say that you should be wary of companies that claim they can repair your credit. These companies are commonly called credit clinics. They don’t do anything for you that you can’t do on your own for free.
Beware of organizations that offer to create a new identity and credit report for you. The FTC, CFPB, and state attorneys general have filed legal actions against some of these organizations. The FTC, CFPB, and others warn that the following claims or actions signal that you may be dealing with a credit clinic:
- The company asks for money up front and charges you before they’ve performed their services.
- The company guarantees to remove late payments, bankruptcies, or similar information from a credit report.
- The company charges a lot of money to repair credit.
- The company asks you to write to the credit reporting company to verify the same credit account information in the file, over and over, even after the information has been determined to be correct.
- The company doesn’t want to or can’t provide a business address.
- The company pushes you to decide to engage them right away.
What is a mixed file?
A mixed file is when the credit files of two or more people are unintentionally combined in a credit reporting company’s database. This can result in errors in name, phone, address and/or credit information. It may happen to people who have common names or similar Social Security Numbers, birth dates, or addresses.
What can I do if I believe that I have a mixed file?
If you believe your information has been mixed with someone else’s, you should:
- Submit a dispute with all of the credit reporting companies that have incorrect information on your credit report
- Identify the information that doesn’t belong to you. This may include addresses, other identification information, and accounts
- Make sure your identification information is complete and includes:
- Your full name, including middle name and suffix, such as Jr., Sr., II, III
- Date of birth
- Social Security Number
- Complete address, including apartment number if applicable
- If you think you know who the incorrect information belongs to, such as a relative, let the credit reporting companies know as that may help them resolve your dispute faster
- Check your credit report for inaccuracies at least annually