The whole credit reporting system can seem a bit mysterious. In fact, when you first realize you have credit reports and a credit score, it may feel a bit like being graded for a class you didnâ€™t even know you were enrolled in!
To help demystify this important aspect of your financial life, here are answers to seven common questions about credit reports.
What Information Does My Credit Report Include?
Todayâ€™s credit reporting system is designed to provide a â€œjust the factsâ€ summary of your financial track record. Your credit reports provide a summary of your credit history. They include information provided directly by lenders and gleaned from public records.
Credit reports do not include gender, ethnicity, religious affiliation, political affiliation, medical history, motor vehicle records or criminal records. And even though credit reports are focused on your financial history, they also donâ€™t include information about your bank accounts.
This is a huge improvement over the subjective and often discriminatory information that was included in credit reports up until the 1960s. (For a fascinating history of consumer credit reporting and how our current system evolved, check out this TIME article). Â
Is There a Downside to Credit Reports?
Your credit reports are inescapable. They paint a financial picture that will follow you wherever you go. This can be terrific for those who have a spotless credit history, but it also means than financial mistakes and rough spots can follow you for a long, long time.
Furthermore, you canâ€™t opt out of having credit reports. Some people see this as troubling aspect of our credit reporting system, since the credit bureaus compile and provide information about us without our consent. None of us signed up to have credit reports, and when there is a data breach like that experienced by Equifax in 2017, the involuntary nature of our current credit reporting system starts to seem problematic.
Plus, credit reports often have errors: a recent FDIC study found that one in four consumers identified errors on their credit reports that might affect their credit scores. This means you can end up paying the price for a mistake you didnâ€™t make.
However, like it or not, this is the system we have. You have credit reports, and you can expect lenders, landlords, insurance companies, employers and others to rely on those reports when making decisions that can affect your plans and dreams in many ways. This is why itâ€™s essential to understand your credit reports, review them regularly and be sure any errors are corrected.
How Do I Access My Credit Reports?
Credit reports are generated by three major credit reporting agencies: Equifax, Experian and TransUnion. You will need to keep an eye on all three. You have a legal right to review your credit reports to insure they are accurate and you have recourse for correcting errors. By law, you are entitled to a free copy of each of your credit reports once a year. You can request your reports at annualcreditreport.com.
You can either review all three reports at the same time each year, or stagger your requests, looking at a different report every four months. This staggered approach can be a good strategy for catching errors in a timely manner and monitoring for signs of fraud.
You may also request reports directly from the credit bureaus. However, the Annual Credit Report website provides an easy way to manage your requests. In addition, the site provides a ton of helpful consumer information, and unlike the credit bureaus and various for-profit credit-monitoring websites, it wonâ€™t try to sell you additional products and services.
Who Else Can See my Credit Reports?
The good news is that not just anyone can access your credit reports. However, the information in your reports could affect more aspects of your life than you might think. In addition to current and potential creditors, those with legitimate access to your credit reports can include banks, landlords, employers, utility companies, insurance companies and government agencies.
Do Married Couples Have a Combined Credit Report?
No. Your credit reports are not merged when you get married.
However, if you apply for a loan together, the lender will look at both or your reports. Itâ€™s best to be honest about your credit history so you donâ€™t run into surprises. And both partnersâ€™ reports need to be reviewed annually so your plans and dreams wonâ€™t be derailed by credit report errors.
What Do My Credit Reports Have to Do With My Credit Score?
You might be surprised to learn the credit bureaus do not generate your credit score. You wonâ€™t see a score anywhere on your reports.
The credit score most lenders look at is your FICO score. FICO stands for Fair Isaac Corporation. Your FICO score uses an algorithm based on various factors in your credit reports, including available credit, amount of credit utilized, payment history and public records like bankruptcies and liens.
FICO scores range from 350 to 850. Generally, scores above 700 are counted as good credit. A good FICO score creates a virtuous cycle. You are set up for future financial success, including the ability to qualify for a loan, getting better interest rates and access to better credit card deals, including lower interest rates and more perks. Your credit score may also affect job opportunities, in some fields.
You can purchase your FICO score from myfico.com. However, you may be able to find out your score without paying for it. Learn more about ways to access your credit score from the Consumer Financial Protection Bureau.
Another alternative is to use a free service like Credit Karma, which pulls credit report information from Equifax and TransUnion and then provides a Vantage 300 credit score. This score uses a different algorithm than the FICO score most lenders will use, but it provides a good approximation at no cost (and it works on the same 350 to 800 scale).
Should I Pay for Credit Monitoring?
No. Many companies will try to sell you monitoring, including the three credit bureaus. But if you request your free reports once a year, you can review all the items a service might check for you. Keep in mind a credit monitoring service wonâ€™t prevent errors or fraud. It will alert you to potential problems.
Unfortunately, there are numerous websites that prey on consumers by offering credit reports and credit monitoring for a monthly fee. But why pay for something you can see for free?
Ignore the TV commercials and avoid â€œlookalike sitesâ€ that try to sell you something. Stick with annualcreditreport.com, or take advantage of access to free credit reports offered by your bank or credit card provider.
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