Credit Report Facts

Your credit report is critically important in its ability to help or harm you in making certain financial transactions. It can help you buy a home or car or make those actions nearly impossible. It can make you attractive to employers and insurance companies or cause them to shy away from you. You should learn what credit reports contain and how you can check your own report and exert some control over its contents.

Definition

The Federal Reserve Bank of San Francisco (FRBSF) defines a credit report as a record containing a list of a consumer's credit-related activities. This includes things like inquiries made for credit applications, current and closed accounts, and payment histories for each account. It also lists certain court actions that affect your finances, like foreclosures, repossessions and bankruptcies. These reports are compiled by three national agencies--Equifax, Experian and TransUnion. Each is an independent company that compiles and provides its information separately.

Purpose

Credit reports are used by lenders to make financial decisions. They give a good indication of whether a customer is likely to repay a loan, credit card or other new account based on past credit history, current open accounts and other information. The lender uses this information to decide whether to open an account and how much to charge as an interest rate. Insurance companies also use credit reports to decide whether to sell a consumer a policy and where to set the premiums. Some employers review credit reports as part of the hiring process and may reject applicants based on a poor credit history.

Compilation

Your credit report is compiled based on information from your creditors, according to the FRBSF. Credit card companies, loan agencies, banks, retailers and others give the credit bureaus regular reports on your account status. This typically includes things like your credit limit, amount owed and payment history. The bureaus may also get public records from the court system. Your report is continually updated as this information changes each month.

Access

The FRBSF explains that access to your credit reports is limited. They may only be reviewed by lenders considering you as a potential credit customer, employers making hiring, promotion or retention decisions, insurers considering you for a new policy or renewal, government agencies investigating your financial status for a legitimate reason, and others to whom you have given permission, like landlords considering you as a tenant. Companies can buy limited information to extend credit and insurance offers unless you opt out through the optoutprescreen.com website, which is maintained by the credit bureaus for this purpose.

Warning

The Federal Trade Commission estimates that 16 percent of consumer credit reports may contain inaccuracies. The credit bureaus do not audit them, so consumers must review their own reports and dispute the mistakes. The Fair Credit Reporting Act requires the credit bureaus to maintain the annualcreditreport.com website to provide free report copies every 12 months upon request. Mistakes can be disputed, and the bureaus have 30 days to get validation from the creditor. They must clear the disputed information from the report if they are unable to do so in that time frame.