For many, credit information is a mystery until applying for a loan/lease, credit card, or mortgage. Often by that time, negative and/or erroneous information on one’s credit report will have already caused problems resulting in possible denials of credit or higher interest rates due to creditor perceived risk. Because your credit report is a means for creditors, landlords, and others to know your creditworthiness, it is important to review the reports periodically to check for mistakes or negative information as well identity theft, which has become more common in recent years. Not addressing such issues may mislead creditors, ruin your credit score, and lead to denials of credit. In order to make sure your reports are free from error and that any negative information is addressed well ahead of completing applications, we recommend reviewing your credit reports at least annually. Below is a brief tutorial on how to gain access to your reports and what to look for.
How to Access your Credit Reports
There are three large credit reporting bureaus that creditors will use to access credit reports: Equifax, Experian, and TransUnion. Under a 2003 law these credit reporting bureaus are required to provide a copy of your credit report to you once every 12 months free of charge. The three reporting bureaus set up AnnualCreditReport.com as a central online resource for report requests. Upon visiting the site and after confirming your identity, you can download credit reports in electronic form or can request your reports by phone or mail.
If you choose to obtain forms online through the Annual Credit Report site, after submitting the requested basic information you will be taken to a page allowing you to select reports from the three credit bureaus by checking boxes next to the Equifax, Experian, and TransUnion logos. You can select one or all of the credit bureaus. Please note that the questions that will be used to verify your identity are very specific to you and concern past and current creditors, loan terms, or other details on the credit report that you would be reasonably expected to know. The AnnualCreditReport.com site is integrated with the websites of the three credit bureaus which makes the transition from one to the other pretty easy. After requesting the report from one bureau, you would return to the main site to repeat the process with the next credit bureau and then do the same for the third.
Alternately, to request copies of your reports by phone, you can call 877-322-8228, or download/complete a request form and mail it to:
Annual Credit Report Request Service
P.O. Box 105281
Atlanta, GA 30348-5281
While the three credit bureaus are required to provide the reports to you annually free of charge, consumers who are denied credit are also able to receive their reports free of charge upon denial of credit. Should this occur, the consumer is entitled to the bureau report that was used by the potential creditor denying the credit and that creditor is required to provide instruction for how to obtain the report along with their notice of credit denial.
How to Read your Credit Report
It is not uncommon for consumers to find inaccurate information on their credit reports. So once you download or send away for your reports, what should you look for?
- To start, you should confirm that all personal information such as name, date of birth, address, past addresses and employment information is correct. If you have not lived at your current address for more than 2 years, prior address information being correct is important. The reports will show only the last four digits of your social security number which should be reviewed for accuracy. Those with common names should be especially critical in reviewing the reports for accuracy. People who have been divorced or recently married should be on the lookout for incorrect marital information where the spouse is listed.
- The “Public Records” section may contain information about lawsuits and judgments involving you (including any past bankruptcies) and should be reviewed for accuracy and timeliness.
- Chapter 7 bankruptcies filed more than 10 years ago are eligible to be removed from the reports, as are bankruptcies filed by a spouse or ex-spouse.
- Unpaid tax liens can remain on reports indefinitely, but paid liens should also be removed after 7 years.
- Lawsuits, judgments, and Chapter 13 bankruptcies reported more than 7 years after the judgement was entered may also be removed.
- Tax liens and criminal arrests more than 7 years old should be removed.
- Review all accounts listed, both those in good standing and those with potentially adverse/negative information. What to look for:
- Make sure all accounts listed are, in fact, your accounts.
- Ensure that spousal accounts (those not jointly owned) and any premarital debts of your spouse are not shown on your credit report as belonging to you.
- Check account histories to see if any late payments showing are incorrect.
- Failure to show that a debt was paid in full – either voluntarily or through a judgment/bankruptcy
- Accounts incorrectly listing you as a co-signer
- Make sure that all accounts that you closed are listed as “closed by the consumer.” Absent that information it may appear that the creditor closed your account for some reason.
- Any adverse information greater than 7 years old should be removed, including accounts with a collection agency or charged off.
What to Do if There is Incorrect Information
If you believe that you have any incorrect or outdated information on your report, the recommended course of action is to dispute it with the reporting bureau and not directly with the creditor. Each bureau’s report will include instructions for how to contact the reporting bureau to dispute an item on the report. It is not illegal for a reporting bureau to have incorrect information on a report, but a claim may arise if the credit bureau or creditor furnishing the information fails to properly investigate a dispute. Starting with the credit bureau to initiate a dispute will ensure proper procedure in case further legal action is warranted.
It is also recommended that disputes be made in writing (not on the phone or on the bureau’s online portal) and include copies of any supporting documentation to back up your claim, including a copy of the report with the disputed item circled. All disputes should be sent by certified mail, “return receipt requested,” so that you can document what the credit reporting bureau has received. Bureaus typically take 30 days to complete an investigation and will respond to a dispute by mail. If the dispute concludes in your favor, the creditor reporting the information is obligated to provide updates to each of the reporting bureaus. Should the dispute result in a correction, the reporting bureau will notify you in writing and send an updated copy of your credit report with their conclusion. Upon your request, the reporting bureau is obligated to send corrected information to anyone who has received your credit report in the past 6 months. You may also request that a corrected copy be sent to any potential employer who received a report within the last 2 years.
What to Do if Negative Information on the Report is Correct
- Late Payments showing up – If you have late payments or other adverse information that is in fact correct and has not yet “timed off of” your report, it may be worthwhile to try to have the credit remove or change the negative item in question. Assuming you are currently in good standing with the creditor but have had a small number of late payments in the past (with no recent late payments) you can write a goodwill letter to the creditor directly that outlines:
- A brief history of your relationship with the creditor
- A brief explanation of what led to any past late payments (financial/personal hardship, incorrect address, etc.)
- A request to remove the negative information given that you are a customer in good standing
In this situation, the creditor may work with you to update the negative information given your good standing with their company.
- You have unpaid debts and can work out a settlement – If you wind up settling an unpaid debt with a creditor, request that it show up on your credit report as “paid as agreed.”
- You paid off debts that still show as negative because they were past due – ask the creditor to update the report to mark the debt as “paid as agreed.”
What to Do if Identity Theft Issues are of Concern
If you have recently been the target of attempted or successful identity theft, you can contact the three credit reporting bureaus and ask that a “credit freeze” (also called a security freeze) be put on your file. This feature will stop potential creditors from being able to pull your credit reports without your permission and will stop identity thieves from being able to open new accounts in your name. The typical time frame for a credit freeze is 90 days, as this feature will slow down the credit process and most consumers do not want to have to expressly give permission for a creditor to pull a credit report forever.
What is a FICO Credit Score?
You have probably heard this term and may know your credit score; however, most consumers do now know how it is calculated, what the score ranges are, and how to improve their scores. Below is a brief explanation of the FICO score:
- FICO was created by a data analytics company called “Fair Isaac” (formerly Fair, Isaac and Company) and is a measure of consumer credit risk that potential creditors take into consideration when one applies for credit.
- FICO scores range on a numerical scale from 350-800 with the typical consensus ratings on “excellent” to “bad” scores as follows:
- Ratings will vary depending on the creditor, with some creditors viewing a score of 720 or greater in the excellent category. Some industries use scales that range from 250-900 so you may see slightly different mentions of scores and ranges.
- In order to have a FICO score, a consumer must have at least one account that has been open for six months or longer and at least one account that has been reported to a reporting bureau within the past six months (these may be the same account).
- FICO scores will fluctuate based on how credit is used.
- Fair Isaac does not specifically opine on how to make your FICO score better, but it is generally accepted that to have a higher FICO score you should strive to:
- Pay all bills on time – payment history impacts ~35% of the score.
- Use no more than 30% of available credit at any given time. So if you have a credit limit of $100,000, keep an outstanding balance below $30,000 or 30%. Utilization impacts ~30% of the score.
- Do not apply often for new credit – only when absolutely needed, as credit applications may take points off of the score. Credit inquiries impact ~10% of the score.
- Use different types of credit responsibly and pay on time. This includes credit card debt (called revolving credit) and mortgages, as well as auto loans (called installment loans). Diversification of credit type impacts ~10% of the score.
- Keep old accounts in good standing open, as the longer the credit history, the more your score may benefit. Credit age impacts ~15% of the score.
- The three reporting agencies have recently created their own scoring system, called “VantageScore,” which is similar to FICO.
- If you believe that your score has improved it may make sense to look to refinance any outstanding loans as you may qualify for a lower interest rate.
- Many credit card issuers (including American Express, Citi, Chase Discover and Bank of America) offer their customers free access to their credit scores. Online resources such as creditkarma.com (an advertiser-supported site where you can also access credit reports from TransUnion and Equifax for free) also provide credit scores for free to their users.