Understanding Your Credit Report

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We are all becoming more aware of how important our credit scores and reports are now that many of us are experiencing financial hardships in the wake of the harsh economic events in recent years. As more aspects of our daily lives become affected by our credit score, it has become more important that consumers understand what is actually in their credit report, how to read it and how to recognize possible errors that might be lurking.  

The three largest nationwide consumer reporting agencies (NCRAs) are Equifax Information Services LLC, TransUnion LLC, and Experian Information Solutions Inc. The NCRAs each maintain credit files on over 200,000,000 adults and receive information from approximately 10,000 furnishers of data. On a monthly basis, these furnishers provide information on over 1.3 billion consumer credit accounts or other “trade lines.” Credit reports play an increasingly important role in the lives of American consumers. Most decisions to grant credit – including mortgage loans, auto loans, credit cards, and private student loans – include information contained in credit reports as part of the lending decision. These reports are also used in other spheres of decision-making, including eligibility for rental housing, setting premiums for auto and homeowners insurance in some states, or determining whether to hire an applicant for a job. As the range and frequency of decisions that rely on credit reports have increased, so has the importance of assuring the accuracy of these reports. These three NCRAs occupy the hub of what can best be described as a national credit reporting system. They, the entities who report information about borrowers to them (furnishers), providers of public records information, and consumers all play roles which affect the accuracy of the information reported in consumer credit reports.

According to a recent Consumer Financial Protection Bureau report, inaccuracies in a credit file can happen in a variety of ways because of how the information gets there in the first place.  The reasons range from errors by the credit applicant when initially applying for credit, to lack of data base integrity within a company's record keeping systems.  Reports by the Federal Trade Commission confirm that credit reports can contain errors significant enough to cause the denial of credit. And those who are not denied credit are only offered unfavorable or 'sub prime' interest rates.  Do the math on a home loan with a 2% interest rate compared to a 4.5% interest rate over 30 years and you will quickly see the payment difference between 650 FICO score compared to a 750 FICO score!  The difference is literally thousands of dollars.  

Components of your credit report

Header or Identifying information including your name, previous names used, known addresses, social security number, date of birth and phone numbers. This information should first on your list of items to scrutinize, especially if you have a common name like John Jones or Michael Smith. An error with one single letter, or a wrong digit in the social security number could be all it takes to compromise the accuracy of the file and therefore cause a really big identity problem. The other rather self-explanatory components include the following:

Trade lines

Public Records

Collections

Inquiries

Here, we have included some of the errors consumers should look out for:

• Inclusion of accounts or records in a credit file that do not belong to the consumer, commonly called a mixed file: Credit reports can contain trade lines or public records about a consumer other than the one who is the subject of the credit report.
• Omission of accounts or records belonging to the consumer: A credit account or public record that belongs to the consumer’s file can be erroneously placed in another consumer’s file, leading to a mixed file, as described above. Alternatively, credit bureau matching algorithms or gaps in data can lead to a consumer trade line being kept separate from the rest of the consumer’s file.
• Trade line or record inaccurately represents information pertaining to the consumer’s account with the creditor: A credit file can inaccurately depict the terms and status of a valid account such as inaccurately depicting the date an account was closed, the credit limit for the account, or whether a trade line is delinquent. Similarly, a collection item on the report may inaccurately reflect the payment status of the debt or the amount of money owed.

How long can adverse information remain on the credit report?

The FCRA limits with some exceptions how long a credit bureau can communicate certain adverse information in a credit report. Many adverse items including records of late payments, delinquencies, or collection items typically stay on a credit report for up to seven years. Likewise, civil suits and civil judgments typically stay on the report for no more than the longer of seven years or the governing statute of limitations, while paid tax liens typically cannot be reported more than seven years after the date of payment. Credit reports generally cannot list bankruptcies for more than 10 years after the order for relief or date of adjudication, except that repayment plans are only reported for seven years. There are also restrictions on communicating a medical service provider’s name, address, and telephone number pertaining to medical debts in a credit report