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Understanding your credit report and credit score can help you manage
and improve your credit situation. By knowing what affects your credit report and credit
scores, you will be able to take positive actions that may lower your credit risk and
increase your credit score.
There are three major credit bureaus: Equifax, TransUnion, and Experian. Together, these
three bureaus compile and maintain credit files on nearly 90 percent of adults in the
United States.
A common public misperception is that these bureaus are government agencies or
extensions of the federal government. In fact, the bureaus are private, for-profit
companies that gather your credit history information and sell it to businesses that are
legally permitted to see your report. The businesses allowed to request your credit report
include creditors such as banks and credit unions, credit card companies, mortgage
lenders, and retail stores, in addition to employers, landlords, and insurance companies.
A consumer credit report is a document prepared by the credit bureaus that provides the
following: Personal Information, Credit History, Public Records (bankruptcy, judgments,
etc.), and Inquiries. Other than inquiries, all of the above information remains on your
credit report for seven to ten years. This information is documented and sold to current
and/or potential lenders, employers, landlords, and insurance agents for the purpose of
providing the consumer’s payment history and credit worthiness.
Based upon the Fair Credit Reporting Act, credit grantors are permitted to review your
credit report to objectively determine your credit worthiness. There are 190 million
credit active people in the United States who have a credit file, meaning they have
applied for credit in some form since they were eighteen. As consumers pay their bills,
most lenders report the payment and account information to at least one of the three
credit bureaus. However, a recent study shows that up to 79% of all credit reports
contain inaccuracies.
While a bankruptcy, judgment, or late payments can lower your credit score pretty
quickly, improving your score takes time. It is best if you check your credit scores and
credit reports at least every 6-12 months, especially prior to applying for a loan. This
way, you have no surprises when a potential lender views your report. You’ll have time to
work on improving any inaccuracies on your credit report and work to increase your
credit score, if needed.
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2 Information Contained in
Credit Reports
Credit reports were originally designed for professional accountants, creditors and
finance experts to read – and the reports haven’t changed much since their inception. The
credit bureaus have taken small steps towards making them more ‘user friendly’, but
consumers still find the reports confusing and difficult to understand.
Credit bureaus compile the majority of your credit information from creditors. The
bureaus also search county and court records to find recorded liens (legal claims),
lawsuits, judgments, and bankruptcy filings.
To create a file for an individual, a credit bureau searches its database and finds entries
that match the person’s name, Social Security number or other identifying information.
The subsequent matches are compiled to complete the report.
1. Personal Information
• Name
• Address
• Previous Address(es)
• Date of Birth
• Social Security Number
2. Account Information
• Account Number
• Name of Creditor (Type of Credit)
• Account Status
• Date of Opening
• Payment Habits
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3. Public Records
• Tax Liens, Bankruptcy, Judgments
4. Inquiries
• This lists a record of those who have requested your credit report
(i.e., potential lenders and creditors). Inquiries should stay on your report
for only two years, so make sure that you request all inquiries that are two
years old or more be removed.
Personal Information
The Personal Information section of your credit report includes your name, Social
Security number, date of birth, current and previous address, employment history, and
more. Different sources report this information to the credit bureaus, so it is not
uncommon to discover variations of your name or discrepancies in your address, Social
Security number, or other pieces of information.
Personal Information is not used in scoring, but it is important to check this information
closely to discover credit fraud or identity theft as well as avoid confusion with others
who have similar names.
Account History
This section contains the overall number of credit accounts and loans that you have held
over the last seven years, such as:
• Mortgage Accounts
• Installment Accounts – (Accounts with fixed terms and regular payments)
• Revolving Accounts – (Accounts with no time limit, such as credit cards)
• Open Accounts
• Closed Accounts
• Accounts in Good Standing
• Accounts Currently Past Due
• Negative Accounts
Negative Account Information
Some credit reports contain a separate section listing negative account information, which
includes information of accounts in which you deviated from your original payment plan.
When negative information in your report is accurate, only the passage of time can assure
its removal. Accurate negative information can generally stay on your report for 7 years.
There are certain exceptions:
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• Information about a lawsuit or an unpaid judgment against you can be
reported for seven years or until the statute of limitations runs out,
whichever is longer.
• Bankruptcy information may be reported for up to 10 years.
• Credit information reported in response to an application for a job with a
salary of more than $75,000 has no time limit.
• Credit information reported because of an application for more than
$150,000 worth of credit or life insurance has no time limit.
Inquiries
The Inquiries section lists the name of a creditor or authorized user who has accessed
your credit report. Each inquiry is listed on your credit file so you know who has
received a copy. There are two types of inquiries – hard and soft, as defined below:
Hard Inquiries
Hard inquiries, also known as voluntary inquiries, are generated when you give
permission for a company to request a copy of your credit report. These inquiries remain
on your credit reports for up to 2 years and can negatively affect your credit score.
Soft Inquiries
Soft (involuntary) inquiries are generated for several different reasons. These inquiries
include your own request for your credit report or when a lender considers you for an
offer of credit and requests to view your report. Soft inquiries do not appear on the credit
report that potential lenders see, and are only shown on the following sample for
informational purposes only. The different types of soft inquiries are:
• PRM
PRM represents promotional inquiries, where a third party provides your
name to a creditor who then extends a firm offer of credit (i.e. direct mail
offering of pre-approved a credit card). Promotional inquiries remain on
your file for 12 months.
• AM or AR
Occasionally your creditors may perform Account Monitoring or Account
Review inquiries to periodically review your account. These typically
remain on your file for 12 months.
Public Records
In addition to matters of public record, such as tax liens, bankruptcies, and other similar
items, this section also includes different information such as accounts that have been
turned over to collection agencies. This information adversely affects your credit score.
Examples of public records contained in your credit reports include:
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Bankruptcy
Bankruptcy is a legal proceeding that is provided to give a person (or business) who is in
severe financial distress a means to be declared fully or partially unable to repay the debts
and gain some relief. In return for full or partial release from those debts, the consumer
may sacrifice some property or agree to a payment plan. (Bankruptcy provides for court
administered liquidation of the assets of a financially troubled individual or business.)
There are several different types of bankruptcy for consumers.
Garnishments
A legal proceeding in which money that would normally be paid to you (such as your
paycheck) is applied directly to the payment of a debt instead.
Foreclosures
The legal process by which a creditor may sell mortgaged property to pay a defaulted
mortgage.
Tax Liens
The government may place a lien on your real or personal property until they receive
payment for unpaid taxes. It is the government's claim (or collateral) for unpaid taxes.
Lawsuits or Judgments
A verdict, reached in court requiring a person to fulfill an obligation, such as paying debt.
Upon payment of the debt (meeting the obligation in full), the judgment has been
satisfied and the consumer is no longer liable. Information about judgments is recorded in
the public records section of a credit report.
Miscellaneous Items
Miscellaneous items include a variety of types of items on your credit report. These items
do not necessarily affect your credit score.
• Consumer Statement
You are allowed to submit statements regarding items on your credit
report, explaining the circumstances surrounding an unresolved dispute.
• Financial Statements
Public records regarding personal property that has been repossessed or
seized in connection with an unpaid loan.
• Marital Items
This section contains legal information regarding divorces and
annulments.
Non-responsibility Statement
This is a statement that you sent to the bureau (or creditor), claiming that
you are not responsible for a particular debt.
SSN or Address Verification Request
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This appears if your address or Social Security number is in question. The
item may specify that your reported address or SSN is too new and has not
been verified.
Your race, color, religion, national origin, sex and marital status.
US law prohibits credit scoring from considering these facts, as well as
any receipt of public assistance, or the exercise of any consumer right
under the Consumer Credit Protection Act.
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3
About Credit Scoring
When you apply for credit – whether for a credit card, a car loan, or a
mortgage – lenders want to know what risk they'd take by loaning
money to you. FICO® scores are the credit scores most lenders use to
determine your credit risk. You should have three FICO scores, one for each of the three
credit bureaus: Experian, TransUnion, and Equifax. Each score is based on information
the credit bureau keeps on file about you. As this information changes, your credit scores
tend to change as well. Your three FICO scores affect both how much and what loan
terms (interest rate, etc.) lenders will offer you at any given time.
For your three FICO scores to be calculated, each of your three credit reports must
contain at least one account which has been open for at least six months. In addition,
each report must contain at least one account that has been updated in the past six
months. This ensures that there is enough information – and enough recent information –
in your report on which to base a FICO score on each report.
Credit bureau scores are not the only scores used. Some lenders may use their
own credit scores, which often include the FICO score as well as other
information about you.
Your credit score may be different at each of the major credit reporting agencies.
The FICO score from each credit reporting agency considers only the data in your
credit report at that agency. If your current scores from the credit reporting
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agencies are different, it may be because the information those agencies have on
you differs.
Your FICO score changes over time. As your data changes at the credit reporting
agency, so will any new credit score based on your credit report.
The credit score was designed to tell lenders how much of a credit risk you are. The
higher your credit score, the lower the risk. A credit score can range from 300 – 850. If
your score is above 700 then you are considered low risk and it should not be hard for
you to get credit. If your credit score is 600 or less then you are considered a higher risk,
meaning lenders will either deny you credit or give you high interest rates.
Your credit scores will vary from bureau to bureau because your score is based on
information found on each credit report. Your reports can vary from bureau to bureau,
and, for a variety of reasons, usually are not the same. If the information is exactly the
same on all three reports, the scores should be within a few points of each other. The
agencies may also list your information differently and thus, you will have different
scores from different reporting agencies.
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Payment History – 35%
Lenders are looking to see if you have paid past credit accounts on time. This is one of
the most important factors in the credit score. This is also why being 30 days late on a
payment hurts your score so much. Any late payment in the last 12 months affects your
credit scores the most.
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• Number of recently opened accounts, and proportion of accounts that are
recently opened, by type of account
• Number of recent credit inquiries
• Time since recent account opening(s), by type of account
• Time since credit inquiry(s)
• Re-establishment of positive credit following past payment problems
I= Installment Loan- an account where the terms are set. There is a set payment amount
and a set due date each month. The payment is to be made every month until the account
is paid off.
Average Credit Score by State that are below the National Average
65
Texas California 672
1
65
Nevada Florida 673
5
65
Arizona Colorado 674
9
66
New Mexico Alaska 674
3
66
Louisiana Indiana 676
3
66
South Carolina Alabama 676
5
66
Oklahoma Washington DC 677
6
66
North Carolina Kentucky 677
7
66
Mississippi West Virginia 679
8
66
Georgia Tennessee 679
8
66
Arkansas Michigan 679
8
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Average Credit Score by State that are near or above the National Average
69
Washington South Dakota 710
1
The following statistics reflect the average use of credit by today's consumers:
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Number of Credit Obligations
On average, consumers have a total of 13 credit obligations on record at a credit bureau.
These include credit cards and installment loans. On average, 9 of the 13 are likely to be
credit cards and 4 of the 13 are likely to be installment loans.
Past Payment Performance
Approximately half of all consumers have accounts reported as 30 or more days late on a
payment. 23% have accounts reported with 90+ days overdue, and 20% have accounts
closed by the lender due to default.
Credit Utilization
About 40% of credit card holders carry a balance of less than $1,000. About 15% have
total card balances in excess of $10,000. Approximately 48% of consumers carry less
than $5,000 of debt (excluding mortgages). Approximately 37% carry more than $10,000
of non-mortgage-related debt as reported to the credit bureaus.
Total Available Credit
The average consumer has access to approximately $19,000 on all credit cards combined.
Approximately 1 in 7 is using 80% or more of their credit card limit.
Length of Credit History
The average consumer's oldest obligation is 14 years old. About 1 in 20 consumers have
credit histories shorter than 2 years.
Credit Inquiries
The average consumer has had only one inquiry on his or her accounts within the past
year. Fewer than 6% had four or more inquiries resulting from a search for new credit.
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4 Improving Your Credit Score.
Accurate negative information generally remains listed on your credit
report for up to seven years, while bankruptcies remain for 7-10
years. However, there are things you can do to gradually improve and maintain a good
credit score, such as the following:
Fix any inaccurate information. This is one of the most important things you can
do to maximize your credit score. Up to 79% of credit reports contain errors.
Consider a competent credit repair service if you would like assistance.
Pay your bills on time. Delinquent payments, even if only a few days late, and
collections can have a major negative impact on your score.
If you have missed payments, get current and stay current. The longer you pay
your bills on time, the better your credit score. Older credit problems count for
less, so poor credit performance won't haunt you forever. The impact of past
credit problems on your score fades as time passes and as recent good payment
patterns show up on your credit report.
Be aware that paying off an accurate collection account will not remove it from
your credit report. It will stay on your report for seven years.
Keep balances low on credit cards and other “revolving credit”. High outstanding
debt can affect a credit score.
Pay off debt. The most effective way to improve your credit score in this area is
by paying down your revolving credit. In fact, owing the same amount but having
fewer open accounts may lower your score.
Don't close unused credit cards as a short-term strategy to raise your score.
Maintain your accounts for a long time. The longer your credit history, the more
it helps increase your credit score. Closing older accounts can actually lower your
score.
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If you have been managing credit for a short time, don't open a lot of new
accounts too rapidly. New accounts will lower your average account age, which
will have a larger effect on your score if you don't have a lot of other credit
information. Also, rapid account buildup can look risky if you are a new credit
user.
Do your rate shopping for a loan within a focused period of time. FICO scores
distinguish between a search for a mortgage or auto loan, where it is customary to
shop for the best rate, and a search for many new credit cards.
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