In the last “Common Cents” I talked about credit and the consumer credit report. I stressed the importance of your credit report – and score – and how credit influences whether you can qualify for a mortgage, auto loan, credit card, apartment lease, insurance policy, or even certain jobs. Most people don’t understand the details of a credit report, how scoring works, and how you can receive a free, no-strings-attached copy of your credit report every year. I’m going to dig into that today.
Your credit report is a detailed record of your credit history compiled by credit reporting agencies. In the U.S., the three major bureaus are Equifax, Experian, and TransUnion. These agencies collect information from lenders, creditors, collection agencies, and public records to create a profile of your borrowing and repayment behavior. Your credit report does not contain a single score. Instead, it holds the raw data used to calculate your credit scores by scoring models such as FICO® and VantageScore®.
Understanding each section of the credit report helps you identify what affects your score and what lenders see.
The first section of the credit report is your Personal Information, which includes identifying details such as full name and variations, Social Security Number (partially masked), date of birth, current and previous addresses, and certain employment history. While this information doesn’t affect your score directly, inaccuracies may signal mixed files that require correction – or even identity theft. I recommend reviewing this section to make sure all information is correct.
Next are your Credit Accounts, which is the core of the report. You should see each account you’ve opened in this section, including credit cards, mortgages, auto loans, student loans, personal loans, and retail accounts. The details of each account – creditor name, date opened, loan amount or credit limit, current balance, payment status, and date closed (if applicable) – will also be provided.
The Payment History section is especially important, as late payments, defaults, or accounts sent to collections can significantly lower your score. Most reports show a month-by-month record of whether payments were made on time. Delinquencies are categorized by severity: 30 days late; 60 days late; 90+ days late; charge-off; and collection. Negative marks can remain on your report for up to seven years, while bankruptcies may stay for up to 10 years.
The Credit Inquiries section lists companies that have accessed your credit report. Hard inquiries occur when you apply for credit and can slightly lower your score temporarily. Soft inquiries occur when you check your own credit or when companies pre-screen you for offers; these do not affect your score. I always like to know who is doing an inquiry on my credit file.
In the Public Records section, serious financial events reported through courts may appear here. This includes bankruptcies, tax liens (if reported), and civil judgments (less common today). Anything listed here can significantly impact creditworthiness.
And finally, the Collection Accounts section. If a debt goes unpaid and is sold to a collection agency, the collection account may appear as a separate negative item. Even small medical collections can affect your score, although newer scoring models treat them less harshly once paid.
Well how does the credit score come into play? The credit score is a numerical summary of the information contained in your credit report. The base FICO® Scores range from 300 to 850, and the good credit score range is 670 to 739. (Experian, What is a Good Credit Score?). The higher the number, the better. FICO® scores are based on the following five factors: payment history (35% of the score); amounts owed (30% of the score); length of credit history (15% of the score); new credit (10% of the score); and credit mix (10% of the score). Salary, occupation, employment history, demographics, soft inquiries – none of that is factored into your credit score.
Now let’s get your free credit report so you can see what it contains. Federal law entitles you to a free copy of your credit report from each bureau once every 12 months through annualcreditreport.com. You will be asked to provide your personal information in order to process the request, and you may choose to enter the information online or by mailing a form. Many financial experts recommend staggering requests throughout the year (for example, one bureau every four months) to monitor your credit continuously. Be advised that you will not receive a score in your reports, although you will be provided with some fee-based options if you want to view your score.
Since I need more space in this publication to talk about improving and rebuilding your credit, I’ll wait and cover that in the third and final credit column in a couple of weeks. A healthy credit report opens doors, and I want to help point you toward the doorway.
Tracy L. Campbell is a partner and financial advisor at Meriwether Wealth and Planning, an independent Registered Investment Adviser (RIA) firm headquartered in downtown Minden, La. E-mail Tracy at tracy@meriwether.com. Disclaimer: This content is for general knowledge and education, not a substitute for professional advice.