How Your Credit Report Is Used by Lenders

There are three nationwide credit reporting agencies that maintain files on millions of people and provide lenders with detailed, objective accounts of your financial reliability. These reports are used to generate your credit scores and can affect whether or not you get approved for loans, and at what interest rates.

What is a credit report?

Tens of thousands of credit card companies, banks, credit unions and other lenders keep records of how much consumers use their accounts. The information is then supplied to one or more credit reporting agencies, which combine it into a credit report. The reports are detailed, objective accounts of credit situations and financial histories — separate from the simplified numerical representation of a consumer’s creditworthiness known as a credit score.

Credit reports provide a readable presentation of data in an individual’s electronic file at one of the three national credit bureaus (Experian, Equifax and TransUnion). Lenders buy these files and use them to determine whether to extend credit or loans. They also check them to make sure the details of a person’s credit history are accurate.

A credit report contains detailed account information, including the status of each account (open, closed or withdrawn), credit limits and the average balance during the past seven years. It also includes a list of entities that have recently checked the file, either for a credit application or because they’re authorized by law to do so for marketing purposes.

What is a credit score?

A credit score is a number that evaluates your creditworthiness, and lenders use it to help determine whether or not you should be approved for credit cards, loans and mortgages, as well as the rates you may qualify for. It is based on information in your credit report, which contains details about the history of your financial obligations reported to the three major credit reporting agencies: Experian, Equifax and TransUnion.

The most important elements of a credit score include payment history (how well you’ve paid your debts), amounts owed (the percentage of total outstanding balances compared to total credit limits, known as credit utilization), length of credit history and whether or not you have a mix of revolving credit (credit cards) and installment credit such as auto loans or home loans. Public records such as collections, liens and civil suits are also considered. Other factors that may affect your credit score are demographic data, such as race and ethnicity, sex, age and employment history.

How do I get a copy of my credit report?

Generally, you can request one free credit report from each of the three nationwide credit reporting agencies—Equifax, Experian and TransUnion—each year. Your credit reports are detailed lists of personal information that contain your identity, financial history, public records and inquiries from lenders and marketers.

Your credit report includes the names and addresses of your creditors, the dates and amounts of your debts and how you’ve paid them. It also includes your credit card accounts and other loans, as well as negative information like late payments or repossessions.

Credit reports are used by businesses that make decisions about lending you money or renting to you, including whether or not to give you a job. The information in your credit report can affect your ability to get a loan, credit card or mortgage and may influence the interest rates you pay on those types of loans. It’s a good idea to check your credit reports regularly for errors and to see how your financial habits are shaping up over time.

How do I dispute errors on my credit report?

If you find errors in your credit report, such as a wrong account balance, incorrect address or transposed Social Security number digits, you have the right to dispute them. You can file a dispute online through Experian’s Dispute Center or by mail. (The CFPB recommends using certified mail with a return receipt, so you have proof the credit bureau received your letter.)

In your dispute, clearly state which items are inaccurate and why. Enclose a copy of your report with the disputed items circled and copies of any documents you may have to support your claim.

The credit reporting company must investigate your claim and get back to you within 30 days, unless it can determine the information is correct and doesn’t need further investigation. Your credit report will then be updated to reflect the results of the dispute investigation, or it will show a status of either “Updated” or “Deleted”.