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Understanding Credit Reports: Your Key to Unlocking Financial Opportunities

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Credit impacts nearly every aspect of your life. Good credit can help you get better interest rates and terms on loans, secure a mortgage, and even help you rent an apartment.

The first step to building good credit is regularly reviewing your credit reports.

Where to get your credit report

The Fair Credit Reporting Act (FCRA) is a federal law enacted to ensure fairness, accuracy and privacy in how consumer credit information is collected, shared and used.

Under the Fair Credit Reporting Act, you can access your credit reports under specific circumstances. For instance, you can request a free report if you're denied credit. You can also access your credit reports from the three major credit bureaus—Equifax, TransUnion and Experian—once a year free through Annual Credit

Your free credit reports do not include your credit scores, but you can purchase those through the credit bureaus.

What’s in your credit report?

Your credit report consists of four main sections.

Identify information

This section of your credit report includes basic identification details such as your name, current and previous addresses and Social Security number. While this information typically doesn't impact your credit score, accurate information is ideal.

Account history

The account history section provides a detailed look at your credit accounts, including credit cards and loans.

It includes information like:

  • Account status (whether the account is opened or closed)
  • Account age (how long the account has been open)
  • Payment history
  • Balance
  • Credit limit

Typically, creditors update this information monthly for active accounts. Closed accounts—including charge-offs or those in collections—stay on your credit report for seven years after closure.

Public records

This section lists financially related data from public records, such as bankruptcies, judgments and tax liens. It's worth noting that it doesn't list arrests or criminal convictions.

Credit inquiries

Inquiries on your credit remain on your credit report for two years, but not all inquiries impact your credit score.

Your report may contain three types of inquiries:

  • Hard inquiries: When you apply for credit, such as a loan or credit card, the lender typically requests a copy of your credit report. These inquiries are known as hard inquiries or hard pulls. Hard inquiries can impact your credit score, although the impact is usually minimal and temporary.
  • Soft inquiries: Soft inquiries, also known as soft pulls, occur when your credit report is accessed for non-lending purposes. This can include background checks, pre-approved credit offers or when you check your credit report. Soft inquiries do not impact your credit score and are not visible to lenders or creditors reviewing your credit report.
  • Shopping period inquiries: When you're actively shopping for a specific type of credit, such as an auto loan or mortgage, multiple inquiries within a short timeframe for the same kind of credit are often treated as a single inquiry. This recognizes that consumers may need to compare various offers and prevents multiple inquiries from significantly affecting their credit score. The specific timeframe for this shopping period can vary, but it's typically around 14-45 days, depending on the credit scoring model used.

How your credit report impacts your credit score

Your credit score is a proprietary calculation based on your credit report. The FICO credit score (developed by the Fair Isaac Corporation) is the most common and widely used. 
Your FICO score ranges from 300 to 850. While each lender sets their credit score requirements, the credit bureaus provide some general guidelines for how credit score ranges break down:
  • 800 to 850: Excellent
  • 740 to 799: Very good
  • 670 to 739: Good
  • 580 to 669: Fair
  • 300 to 579: Poor 

What goes into your FICO credit score

Several factors contribute to your FICO credit score. 
Here's a breakdown of how credit scores are calculated:
  • Payment history: The most significant factor, accounting for about 35% of your credit score.
  • Amounts owed: This includes the total debt owed on all your accounts and contributes around 30% of your score.
  • Length of credit history: The longer your credit history, the more positively it impacts your score. Accounts for 15% of your score.
  • Credit mix: Having a healthy combination of different types of credit, such as credit cards and loans, can boost your score. Accounts for 10% of your score.
  • New credit: Opening multiple accounts in a short period of time can temporarily lower your score. Accounts for 10% of your score. 

What to look for in your credit report

According to a study by the Federal Trade Commission, 5% of consumers have an error significant enough to impact their credit. 
Many experts recommend checking your credit reports at least once a year and several months before making a significant financial move like buying a home. You should review your credit reports from the three credit bureaus, as they may all report different information. 
Once you have your credit reports in hand, be on the lookout for: 

Inaccurate identity information

Inaccuracies in your identification information could be a simple typo or they could indicate a potential merged credit report or identity theft.

Inaccurate account information

Inaccuracies in your account histories can drag down your credit scores. Be on the lookout for:
  • Payments reported late that you made on time
  • Incorrect balances
  • Incorrect credit limits
  • Accounts reporting open that are closed
  • Accounts reporting closed that are open
Keep in mind credit information isn’t updated in real-time. Your online account may not reflect what you see on your credit report. 

Charge-offs and collections

Charge-offs and collections can significantly hurt your credit score. While you can't remove accurate information, it's essential to be aware of these items and work with your creditors to address them. Remember that a charge-off can stay on your credit report for up to seven years, but over time they’ll have less impact on your credit scores. 

Late payments 

Typically, accounts paid on time are reported as “paid as agreed” on your credit reports. Missed or late payments can have a detrimental effect on your credit score. Regularly check your credit report for any instances of late payments. If accurate, take steps to get your accounts caught up quickly to minimize the impact on your credit score.

How to dispute inaccuracies on your credit report

If you encounter inaccuracies on your credit report, it's essential to take action. Follow these steps to dispute errors:
  1. Gather documentation: Collect evidence supporting your claims, such as payment receipts or account statements. The more proof you have, the easier it will be for the credit bureau to investigate a claim in your favor.
  2. Contact the credit bureau: You can submit a dispute letter through the mail along with supporting documentation to the credit bureau reporting the error. All three credit bureaus also allow you to file a dispute online.
  3. Investigate within 30 days: By law, credit bureaus must investigate legitimate disputes within 30 days of receiving your letter.
  4. Review the results: The credit bureau will provide you with the outcome of the investigation. If errors are found, they will be corrected, and you'll receive an updated credit report.
Good credit opens doors to better opportunities. You can take control of your financial future by regularly reviewing your credit reports and addressing any inaccuracies. 

Have questions about your credit reports or credit scores? Schedule some time with one of our Representatives to talk through your unique situation. We’re here to help guide you every step of the way.