Have Bad Credit? Check Your Credit Report!

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Your credit score is a snapshot of your creditworthiness. But it isn’t the full picture.

Do you have a “bad” credit score? And if so, what does that really mean? While definitions of a bad FICO score vary, it’s generally true that any score below 630 is going to get you either a) turned down for a loan or b) charged much higher interest rates in order to borrow money.

It doesn’t quite seem fair that one little three digit number should have so much power over your finances, but these scores aren’t just plucked out of thin air. They’re actually based on the information in your credit report.

Here’s a simple way to think about it: Your credit report is like a test and a credit score is like the grade that you receive on that test. So if you’re wondering why your credit score isn’t so hot, then it’s best to look back at the information that’s contained in your report.

And if you’ve never even heard of a credit report before, don’t worry: we’ve got you covered too.

What is a credit report?

“A credit report is a record of your credit activities created by a consumer/credit reporting agency (CRA),” says attorney and best-selling author of The Plastic Effect, Stephen Lesavich, PHD (@SLesavich).

“The most common type of CRA is a credit reporting bureau. The three major credit reporting bureaus in the United States are Equifax, Experian and TransUnion. The credit reporting bureaus routinely collect and record information from lenders who have loaned you money, credit card issuers, and other financial institutions who have extended credit to you.”

Lesavich says, “Your credit report lists all accounts for which money has been lent to you and credit extended to you.”

Think of your credit report like a summary of how much money you’ve borrowed and how reliably you’ve paid that money back. For a potential lender, it’s an indicator of how likely you are to pay them back.

How does a credit report work?

“Your credit report includes financial information (e.g., your mortgage, loan, and credit card account balances), and your payment history (including on-time and late payments),” says Lesavich. “Also included is a list of any legal actions you have taken (e.g., declaring bankruptcy, having debt canceled, etc.).”

He adds that “Legal actions that have been taken against you (e.g., collections actions initiated against you, a repossession action initiated against you, or a legal judgment or tax lien recorded against you, etc.) are also listed in your credit report”

“Consumers should be aware the data contained in each report may vary, this is because lenders are only required to report to one bureau (not all three),” says personal finance expert Angel Radcliffe, CEO of CAS Consultants (@Cas_Dallas).

“One question clients ask is ‘why does my credit card show up on Experian but not Equifax or Transunion?’ And it’s because said credit card company is not required to report to all three; therefore you may see a variance in scores due to more accounts being reported on one bureau versus the other.”

According to Radcliffe, information on your credit report falls into several sections:

  • Personal Information (Name, Address, Phone, Employer)—This information is updated by any applications the consumer fills out.
  • Judgments/Liens—Any tax liens or judgments from lawsuits, bankruptcy.
  • Collections —Any accounts in collections.
  • Satisfactory Accounts—Any accounts which are in good standing.
  • Revolving Accounts—Typically revolving lines of credit & credit cards.
  • Inquiries—Requests made for your credit report. Includes soft & hard pulls. Inquiries remain on your report for two years.

How long does information stay on your report?

“While there are many sections which make up your credit report,” says Radcliffe, “it is important to understand how the information is updated and how long negative information can remain. Negative information is allowed to remain up to seven years, ten years for bankruptcy filings.

Lesavich says that “In general, negative but accurate information (e.g., late payments, missed payments, etc.), stays on a credit report from seven years to ten years from the date of the last negative activity. Some remain on indefinitely.”

Lesavich provides a quick guide to how long different kinds of information stays on your report:

  • Chapter 7 or 11 bankruptcies: Seven years.
  • Chapter 13: Ten years.
  • Collection Accounts: Seven years
  • Public Records (legal judgments, paid tax liens, etc.): Seven years
  • Unpaid tax liens: Indefinitely
  • Credit Accounts (credit cards, loans, etc.): Ten years from the date of last activity.
  • New Credit Inquiries: One to two years depending on the type of inquiry.

How to dispute errors on your report.

Believe it or not, sometimes wrong information will appear on your credit report. If that happens, it could be negatively impacting your credit score. You’ll want to get that fixed pronto.

The first step is to check your credit report to make sure all the information on it is correct. Remember, information will vary between your reports from the three bureaus. So something that might be correct on one report might be incorrect on another.

Here’s the good news: you can get a copy of all three reports for free!

By law, each of the credit bureaus needs to provide you with one free copy of your credit report per year if you request one. So all you need to do is ask! Just visit AnnualCreditReport.com or call (877) 322-8228.

Lesavich suggests that “Since you are entitled to one free credit report from each credit reporting bureau, consider ordering one of your credit reports from one of the credit reporting bureaus in each four-month period during a calendar year. This way, you can monitor your credit for free throughout the year.”

“Review the information on each of your credit reports and take action to correct any errors you find,” says Lesavich. “If you find any errors in your credit report, you can dispute the errors electronically directly from your free credit report. The three credit reporting bureaus each provide you with a method to initiate a dispute directly from the display of your free credit report. You can also dispute any errors you find in writing.”

For more in-depth instructions, Lesavich points towards a document on the FTC website titled FTC Facts for Consumers – How to Dispute Credit Report Errors

In general, at least two steps are required for every incorrect entry you find on your credit report,” says Lesavich. “You must write to both the credit reporting bureau that reported the error, and the appropriate creditor. In these letters, you must indicate which entry you want to dispute as inaccurate, and explain in detail why you think the entry is inaccurate and provide supporting documentation to prove your assertions.”

The information on your credit report determines your credit score. Errors on your report could mean the difference between buying that dream home and missing out entirely. Get a copy of your report and make sure everything is accurate. Your financial future could depend on it!

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Contributors
Stephen Lesavich, PhD, JD, (@SLesavich) is an attorney, credit card expert, award-winning and best-selling author of “The Plastic Effect: How Urban Legends Influence the Use and Misuse of Credit Cards”.
Angel Radcliffe, (@Cas_Dallas) MBA is a Public Speaker, Author, Motivator & Entrepreneur.  She is the owner of CAS Consultants, a boutique consulting firm in Dallas, TX focusing on ‘Empowering Entrepreneurs Through Financial Management’. Ms. Radcliffe is a recipient of the National Financial Educators Award & is dedicated to educating the community on Financial Literacy – Credit & Budget Management for Consumers & Small Businesses.