What’s on a credit report?

This is the second post of the series on credit reports. I will cover the content of a credit report.

First of all, I need to clarify that when I mention “credit” and “credit report”, I imply consumer credit, or personal credit, as opposed to business credit, which has to do with how a business manages debts. Since this blog is about personal finance, I will only cover consumer credit.

Second of all, there are two types of consumer credit reports: the type that credit bureaus release to you for free upon request, which I called a “basic report” and the type that the consumer divisions of the bureaus sell to you which provides a credit score and lists the factors affecting your score; I call this an “enhanced report.” The second type covers everything the first type covers, so I will analyze what’s on the first type, then explain the add-ons from the second type.

1. Basic report

A picture is worth a thousand words. I suggest you take a look at a sample credit report provided by Transunion, one of the three credit bureaus, as I walk you through the matrix of information:

Click to access Reading_Your_Report.pdf

Personal information: including your name, last 4 digits of SSN, present and past addresses, employer (if reported by you), etc. If you see an unrecognizable address or employer, it is possible that your personal information has been stolen and wrongfully used. So make sure you check every item.

Public records: including criminal records, bankruptcies, and the likes. Hopefully you don’t have anything in this section.

Credit items: history and status of each of your credit accounts, primarily credit cards, personal loans, auto loans, and mortgages. This is the most complicated section of the credit report, and is most prone to errors. For each account, the report will show the type of account: installment loan (personal loan, car loan), revolving account (credit card), mortgage, or collection; the creditor, such as a bank, a mortgage lender, or a credit card issuer; the opening and closing dates; the credit limit, and a host of other basic information.

The payment history of each account is recorded for 7 years. If you have an unpaid account, the account status will be unpaid. If your account is paid but you have missed a payment in the past 7 years, the status will be “paid/past due xxx days”. Additionally, the report may show a graph of your payment history in the last 2 years.

Inquiries: each time a creditor requests your credit report, it results in an inquiry on your future reports visible to future viewers. Occasionally some non-creditor companies can request your credit report as well. I have an inquiry from Comcast from months back, and I don’t even remember if I ever authorized them to access my credit history; I applied for service with them but could not schedule an appointment due to both my roommate and me being busy at the time, and I never went through with it since I moved out shortly after. When I have time I may try to get them to remove this inquiry. Anyway, be careful when you sign up for service to make sure you don’t get an unexpected inquiry.

When a company requests your credit report, they can choose to code the request as “hard” or “soft”, resulting in a “hard inquiry” or a “soft inquiry”. Only hard inquiries are visible to everyone and affect your credit worthiness; soft inquiries are only visible to you. I have registered myself for several credit monitoring services; these services perform soft inquiries only.

If you find the facts about inquiries confusing, that’s because they really are. The good news is, inquiries don’t have too much of an effect on your creditworthiness. I will cover this in a later post.

2. Extras from an enhanced report.

You get what you pay for, right? Well, I’ll leave that to your judgment, but by paying for an enhanced credit report you do get some extras. Most importantly, you are provided with a credit score. Supposedly, a credit score determines your creditworthiness and predicts the result of your future credit applications. Exciting, right? Many people are crazy about credit scores; they try different methods to obtain a credit score, and freak out if it’s not what they want to see. Few are aware that there is no such a thing as “the credit score”. Each credit profile, at any one point in time, has multiple credit scores, generated by multiple scoring models. Each model will give you a different score. More on this later.
An enhanced report will also analyze the factors that help or hurt your credit score, and suggest ways you can improve your score. It may also give you an approximation of the interest rate you’ll get if you apply for a loan with the current credit score. These are both very helpful sections if you have a particular goal in mind. If you plan to apply for mortgage in 2 years and want the lowest rate possible, you know what target score to shoot for and how to reach the target.

An enhanced report also typically shows where you stand relative to the population in terms of credit score, as well as a grade for your creditworthiness. You may be curious about this, but it doesn’t have any practical implication.

These are the main benefits of an enhanced report. An enhanced report can cost you anywhere between $0 and $20, depending on where you buy it from, whether you obtain the report from a trial subscription and cancel the trial, whether you have a promotion code, etc. I will also cover all this in a specialized post.

I hope you found all this information worth reading. I admit this is a boring post, but it’s the basis for the really exciting posts that come next in the series.

Thank you for reading. If you have any questions or comments, please address them below, and I will respond to them as soon as I can.

Have a great week!
-Richard