What a Credit Report Is — And Isn't
Credit reporting is about a century old. Merchants created the first credit bureaus by banding together to collect and share transaction information and other customer data as a means to identify good customers and chase away scofflaws. Unfortunately, by the 1960s, credit reports were not being used as guides for who deserved credit; they were instead used as means of deciding who would not be awarded credit.
Before the passage of the Fair Credit Reporting Act in 1971, it was common for data on credit reports to go beyond traditional credit data and include lifestyle information gathered from newspapers and other public records. A credit report might include details on a person's race, sexual orientation, or drinking habits — even public observations about the way the person lived.
Today, a credit report is legally stripped of that controversial data. It is a real-time record of all your credit activities and legal activities such as liens, bankruptcies, and overdue child support. Most public record information stays on your credit report for seven years. It lists your auto loans, credit card balances, current mortgage, and your open credit lines.
It doesn't include information about your checking or savings accounts, bankruptcies that are more than ten years old, charged-off debts or debts placed for collection that are more than seven years old, gender, ethnicity, religion, political affiliation, medical history, or criminal records. Your credit score is generated by information on your credit report, but it's not part of the report itself. The bottom line is that your credit report is your debt biography.
It isn't foolproof, though, and that's why it's your responsibility to check its accuracy. Credit reports are gathered and sold by three organizations — Equifax, TransUnion, and Experian — called credit reporting agencies. They gather the information, store it in their databases, and sell it for a fee to five potential audiences:
Creditors looking to lend to you for the first time or another.
Insurers considering you for a new auto, home, or life insurance policy or for potential changes to a policy you already have.
Employers considering you for hire, promotion, reassignment, or retention.
Government agencies reviewing your financial data or government status, or courts requiring this information in a legal proceeding.
Landlords or anyone else who can prove a legitimate business need for the information.
With all those various groups looking over your shoulder, it's clear why you should make sure this information is accurate. Read your credit report over carefully, and make sure you immediately report any inaccuracies.
Did you know that potential use of your credit report falls under the U.S. Patriot Act? Passed by Congress in 2001 in the aftermath of the September 11 terrorist attacks, the act originally allowed greater freedoms for the FBI and other national security organizations to demand customer records from credit reporting agencies in addition to banks, phone companies, Internet service providers, and other organizations without judicial review.
There are four primary categories of information that you see in your credit report:
1. Identifying information: Your full name, any known aliases, current and previous addresses, Social Security number, year of birth, current and past employers, and, if applicable, similar information about your spouse.
2. Credit information: The accounts you have with banks, retailers, creditcard issuers, utility companies, and other lenders. Accounts are listed by type of loan, such as mortgage, student loan, revolving credit, or installment loan; the date you opened the account; your credit limit or the loan amount; any cosigners of the loan; and your payment pattern over the past two years.
3. Public record information: State and county court records on bankruptcy, tax liens, or monetary judgments (some credit reporting agencies list nonmonetary judgments as well).
4. Recent inquiries: The names of those who have obtained copies of your credit report within the past year (two years for employment purposes).
Ask potential lenders which credit reporting agency they use. If there is one credit report they favor over others, it's important to know this so you can make sure the information on that report — as well as the others — is correct.