How Credit Reporting Works

Understanding the Credit Reporting Process

What credit is…and why it matters

According to Merriam-Webster’s online dictionary, credit is:

time given for payment for goods or services sold on trust.

Using credit means you’re spending tomorrow’s paycheck today.

To have an active credit file, you must have:

One open account, and

One account that has been updated by a credit bureau in the past six months.

How do I know if I have a credit file?

What is a credit bureau?

Credit reporting agencies (credit bureaus) keep track of every credit transaction you make.

Credit bureaus work with lenders, creditors, insurers, and employers to update and distribute information to appropriate parties.

Each credit bureau maintains its own database of information, and uses that data to compile your individual credit report.

Credit bureaus do not share information. Credit bureaus may update files on different days, so your credit report can vary slightly from bureau to bureau.

The three national credit reporting bureaus are Equifax, Experian, and TransUnion.

Here’s how the credit reporting process works…..

It starts with the individual….. A consumer fills out an application for a new credit account or credit card…..

… .The creditor then requests a copy of the applicant’s credit file from one of the three credit bureaus. A “hard” inquiry will appear on the applicant’s credit report.

If credit is satisfactory, an account will be opened for the consumer……

… The credit issuer will track the usage of the card and bill the customer on a regular basis.

All billing and payment activity for the account is reported to each credit bureau every 30 days. The account becomes part of the consumer’s overall credit report.

What is in my credit report? Your credit report shows a long-range pattern of how you manage your credit over time. There are four basic sections to every credit report:

The Personal Information Section includes:

Your name

Date of birth

Social security number

Address

Phone number

Employment info

The Financial Information Section — also called your Trade Lines — contains information about your current and past credit accounts. Your credit report will show all activity for each account listed for the past seven years.

The Legal Section lists legal actions that affect your financial life, including:

Bankruptcy filings

Liens

Garnishments

Summary judgments

Court ordered payments

The Inquiry Section lists everyone who has accessed your credit report in the last two years.

Creditors who review your account for the purpose of granting new credit are noted as “hard” inquiries. Too many hard inquiries may decrease your credit score.

All other actions are considered “soft” inquiries and do not affect your credit score.

Can I get a free credit report? The law allows every consumer the right to obtain one FREE copy of their credit report each year from all 3 credit bureaus.

To get your FREE report, go to www.annualcreditreport.com . NOTE: your credit reports are free, but you must pay to receive your scores.

You are also entitled to a free credit report if:

You are unemployed and about to seek employment, or

Your credit report is inaccurate due to fraud or identity theft.

For further assistance To learn more about consumer credit issues, including credit rights and responsibilities, visit the US Federal Trade Commission’s website at www.ftc.gov .