A Complete Beginner’s Guide to Finding and Understanding Your Credit Report
What are some major milestones you hope to hit in your lifetime?
We can all dream, but the reality is many factors can hold you back from achieving these goals — including this virtual thing in cyberspace called your credit report.
“Credit reports have a pretty ubiquitous role in our financial lives today,” says Rod Griffin, the director of public education at Experian.
However, studies have found that many Americans simply disregard their credit reports.
The State of Credit Reports in the U.S.
A 2016 Credit.com survey revealed some insights into the state of credit reports in the U.S. Among those who don’t check theirs:
- Nearly 40% of millennials say they don’t know where to get a credit report.
- 34% overall say they’ve never thought about checking their credit report.
- 29% say they pay their bills on time, so there’s no point in checking their credit report.
- 26% say they don’t think it’s important.
- 19% say they already know their credit score, so they don’t need to pull a report.
- 13% say they’re afraid to even look.
Because we all seem a little lost or scared, let’s start at square one when it comes to credit reports: What the heck are these things?
Here’s Your Credit Report Definition
The Consumer Financial Protection Bureau recently defined it:
“A credit report is a statement that has information about your credit activity and current credit situation, such as loan-paying history and the status of your credit accounts.”
You don’t just have one credit report. Chances are, you have several — including one from each of the Big Three credit reporting agencies: Experian, Equifax and TransUnion. They snag information from various reporting sources and compile it into your credit report.
What Does a Credit Report Include?
Naturally, you might think a credit report only includes credit information.
“…a credit report isn’t just about credit,” Griffin says.
“Everything in your credit report is debt related, aside from things like your identity. We need to know who you are — so, your name, address, Social Security number, date of birth, etc. That helps us verify who you are.”
Here’s exactly what a credit report includes, according to Experian:
- Your personal information: your name, aliases, birthday, Social Security number, current and past addresses, phone numbers, and current and past employers.
- Your accounts: your credit accounts, including credit cards and installment loans like mortgages or auto loans; creditor names; account numbers; balances; payment history; and account status (i.e. past due).
- Public records: court judgments (though Griffin says the majority of these are being omitted from credit reports), bankruptcies, tax liens.
- Recent inquiries: who has pulled your credit report and when.
Each of the three agencies could have different information about you.
What’s not included on your credit report? Surprisingly, your credit score.
Credit Report vs. Credit Score: Nope, They’re Not Synonymous
“The credit report does not include a credit score,” Griffin explains.
He encourages consumers to think of it this way: “The analogy I use is a credit report is like the paper you write in high school, and the credit score is like the grade the teacher gives you.”
The credit score is a three-digit number that represents the information in your credit report.
Why Is Checking a Credit Report Important?
Think only your credit score is important in making big financial decisions?
It is important, but your credit score is the result of whatever’s in your report.
“The risk factors provided with the score describe what information from your credit report had the most effect on the score,” Griffin says.
By combing through your credit report, you can see what you need to do to increase that credit score — whether it’s to pay off a bill in collections or make a credit card payment. (More on all this later.)
Checking a credit report can also help you spot signs of identity theft.
Steve Weisman, professor at Bentley University and author of the fraud and identity theft blog Scamicide, encourages consumers to regularly take a look at each of their three major credit reports.
Comb through to see what’s not yours.
“Credit cards, overdue bills and anything out of the ordinary that is not yours should be disputed with the credit reporting agencies,” Weisman says.
Sometimes, he reminds us, it’s not even identity theft. It might be that the credit reporting agency made a mistake, “which is understandable with the millions of pieces of information they process.”
If you ever spot anything that points to identity theft or a mistake in reporting, visit the agency and file a dispute. You can do this online.
Here’s How a Bad Credit Report Can Affect You
Now that you know what a credit report is and why it’s so important, consider how a bad credit report can affect you.
Here are just a few ways:
1. Job Opportunities
Did you know employers can review a limited version of your credit report? They need your written permission, of course.
(This is when you can be thankful your credit score doesn’t show up on your credit report, right?)
“The credit report could affect job opportunities, especially if you’re going to manage a company’s money, or it’s a security-sensitive role,” Griffin says.
For example, if you’re going to be the director of public education at a major credit bureau (cough, Griffin, cough), your employer will check your credit report.
“I can tell you that from experience, which makes perfect sense,” he says. “If I’m going to talk about credit reports, I need to take care of my credit report.”
An employer might also check your report if you’re going to work at, say, a chemical factory. They’re going to want to confirm your identity.
2. Your Ability to Get a Loan or Open a Credit Card
If you have poor credit history, lenders might not want to help you out, and your application could be denied.
Or, perhaps, your interest rates increase, causing you to pay more over time.
“When you apply for credit, including credit cards, student loans, auto loans and mortgage loans, lenders check your credit report to make decisions about whether or not to grant you credit and about the rates and terms you qualify for,” Experian says.
3. Your Insurance Rates
Applying for any type of insurance?
Insurance companies might check your credit report and credit scores.
“The report and scores help determine that you will be able to pay your monthly premiums and the risk that you may make a claim, which helps them set fair rates based on risk,” Griffin says.
4. Your Ability to Rent
Just like a potential employer might pull your credit report, a potential landlord can do the same. They’ll use the information to determine whether you’ll be able to pay your rent on time.
5. Your Utility Deposits — and Even Cell Phone Plans
When you open an account with a utility company, it checks your credit report as part of your application, looking in particular at your credit history.
If you have bad credit, these companies might be more apt to charge you a security deposit.
Things are no different for cell phone providers — your plan might be affected by your credit history, as well.
Here’s How to Get Your Free Credit Report
You should never have to pay to access your credit report.
And no, it won’t hurt your credit — no matter how many times you check it.
“People are often afraid to check their credit report,” Griffin says. “I don’t know why. It’s usually not as bad as you think. You might be surprised — probably will be surprised.”
Try using a site like Free Credit Report, a product of Experian.
Enter your basic information, including the last four digits of your Social Security number. Don’t worry — this is just used to verify your identity. You’ll also create a username and secure password, so you can check in when your report is updated every 30 days.
The nicest part is it’s actually free. You don’t have to enter a credit card number, so you don’t risk a surprise charge in the future.
On the first page of your credit report, you’ll find your accounts summary and debt summary.
Under “accounts,” you’ll find your open accounts as well as their balances, credit limits, usage and year opened.
Click over to “collections”… gasp… and see what’s in there.
Click over to “inquiries” to see which businesses have requested hard inquiries, which remain on your credit report for 25 months.
Take some time to look through these tabs. Read the summaries Free Credit Report offers at the top of each page. For example, under collections, it reads:
Collections are accounts that are seriously overdue and may have been turned over to a collection agency. Collection accounts are deleted from your credit history seven years from the original delinquency date of the original account that you failed to pay as agreed. Having a collection account on your Credit Report can have a negative impact to your Credit Score.
This will help you shape up your credit report and, in turn, your credit score.
You’ll also be able to spot any fishy activity or misinformation, as Weisman suggested.
This platform will make you pay to see your credit score, but there are plenty of other sites to get that for free. We recommend you try Credit Sesame for a free credit score and report card.
So, go ahead and take a deep breath. Now you know why it’s important to pull your credit report — and how to do so.
No more excuses!
Carson Kohler (@CarsonKohler) is a junior writer at The Penny Hoarder. She’s embarrassed to admit she never checked her credit report until less than a year ago… But she feels oh-so relieved by checking it regularly now.