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Credit Report Terms and Questions You Must Know

Credit reports and credit scores are among the most well-known but still mysterious aspects of personal finance. There are millions of articles and resources on the Internet that help people understand credit, yet many are still left confused. I can’t blame them because there often seems to be contradicting information from one website to another.

In this article, you’ll learn about the key terms of credit reports and scores and frequently asked questions about them.

Important Credit Terms Explained

Credit Reporting Agencies

Credit reporting agencies–more commonly known as credit bureaus–are companies that collect information on individual credit history and financial relationships. Credit bureaus compile and sell these reports. They provide access to credit reports for consumers, creditors, and other organizations as allowed by law.  

The three major credit bureaus in the US are:

Credit Report

A credit report contains information about your credit, some bill repayment history, and the status of your credit accounts. This information includes how often you make your payments on time, how much credit you have, how much credit you have available, how much credit you are using, and whether a debt or bill collector is collecting on money you owe.

Get your federally mandated free credit report through annualcreditreport.com.

Credit Score

credit score is a numerical representation of your credit history. It makes it easier for lenders to systematically make loan decisions. Credit scores are a reflection of how you’ve handled credit in the past and are used to determine your potential credit relationship in the future. You have more than “one” credit score and multiple credit scores used by lenders. All credit scores are generated from information found in your credit report, but how the numerical number is calculated can vary.

There are two main credit scoring models used:

Learn how to maintain or improve your credit score.

Fair Credit Reporting Act

The Fair Credit Reporting Act (FCRA) is a Federal law established in 1971. It gives consumers the right to see their credit records and correct any mistakes. The FCRA regulates consumer credit reporting and related industries to ensure that consumer information is reported accurately, timely, and completely.

Read on how to dispute credit report inaccuracies.

No Credit / Thin Credit File

If you’ve never had credit under your name or limited credit history, you may hear the terms no credit file or a thin credit file. Consumers with thin or limited credit files may not have enough information to produce a credit score.

Learn how to establish credit or strengthen credit.

Credit Inquiry

Credit inquiries are requests by companies such as lenders to check your credit. There are two types of information found on your credit report: soft and hard credit inquiries.

You can view your credit inquiries when you request your report on annualcreditreport.com or using a free credit monitoring app.

Tradelines

Tradelines refer to accounts on your credit report. For example, a car loan and credit card found on your credit report would be considered two tradelines.

Fraud Alert

Placing a fraud alert is important if you’re a victim of identity theft or fraud. A fraud alert requires creditors who check your credit report to take steps to verify your identity before opening a new account, issuing an additional card, or increasing the credit limit on an existing account based on a consumer’s request.

When you place a fraud alert on your credit report at one of the nationwide credit reporting companies, it must notify the others. There are two main types of fraud alerts: initial fraud alerts and extended alerts.

Identity Theft

Identity theft occurs when your identity is used to commit fraud, such as opening new credit accounts, applying for loans, or receiving benefits. Using your identity fraudulently can also mean using your personal information, such as your name, social security number, or credit card number.

Credit Freeze

Credit freezes, also called security freezes, are designed to prevent credit reporting companies such as Experian, TransUnion, and Equifax from releasing your credit report without your implicit consent. This prevents new creditors from accessing your credit file and any others from opening accounts in your name until the freeze is removed.

Credit Report Monitoring

Companies offer credit report monitoring to keep you updated and monitor credit activity. The monitoring service looks at important changes on your credit report and notifies you of any potentially suspicious activity.

Find the best credit report monitoring service.

12 Credit Report and Credit Score FAQs

Here are the top questions to help you further understand credit.

1. Where can I get a free credit report?

There is only one federally mandated website where you can access your credit reports from all three credit bureaus for free: AnnualCreditReport.com. You’re entitled to a copy of your credit reports from each bureau once every 12 months.

2. What is a credit report inquiry?

Credit inquiries are records created when someone looks at your credit information. There are soft inquiries that don’t impact your credit score and hard inquiries when you apply for credit or a loan.

3. Will requesting my credit report hurt my credit score?

Requesting your credit report will not hurt your credit score. Checking your credit report is not an inquiry (or application) for new credit, so it does not affect your score.

4. How can I get access to free credit scores?

There are an increasing number of ways to get free credit scores. Many financial institutions, such as banks, credit unions, and credit card companies, offer their customers access to free credit scores. Additionally, you can get free credit scores with services offered by many fintech companies, like Credit Karma, which originated the free score movement. Find a free credit score app.

5. How do I build a good credit score?

Building a good credit score takes time. If you’ve never had credit, establishing yourself as a responsible borrower to lenders will take a year or two. To build good credit, you’ll need to have open credit accounts, maintain low balances compared to your credit limit, and make on-time payments every month. Apply for credit with a reputable creditor with a community bank or credit union. You can also apply for a credit builder account.

6. Is my credit score good or bad?

Your credit score is a 3-digit number that falls within a range created by companies like FICO® or VantageScore. For example, FICO’s credit score range is between 300 and 850. If your score is between 300 and 450, you’d be considered to have “very poor” credit. Now, if your credit score was 750, you’d be considered within the “Very Good” to “Excellent” range. With scores, knowing where you fall in the credit score range is more important.

7. What factors impact my credit score?

There are many algorithms used to generate any number of credit scores. However, public knowledge about FICO scores indicates they use five factors to calculate your credit scores. These five factors include

  • Payment History (35%),
  • Capacity (30%),
  • Credit History (15%),
  • Credit Mix (10%),
  • And New Credit (10%).

8. What can I do to improve my score?

Credit scoring systems are complex, and the credit scores used by creditors can vary greatly. What’s important is the accuracy of the information in your credit report, which determines your credit score. Lots of negative information can lower your score, so the goal would be to improve the accuracy of your report and have as many positive tradelines reflected as possible.

9. How can I fix inaccuracies on my credit report?

By federal law, you have the right to accurate credit reports, but it is up to you to ensure they are accurate. When you find inaccurate information on your report, you can correct credit reporting errors directly with the credit report agencies–Experian, TransUnion, and Equifax. The credit bureaus are required to investigate your claim and will confirm the information or remove the inaccuracy.

10. How long can a reporting agency report negative information on my credit report?

Credit bureaus can report accurate negative information for up to seven years and bankruptcies for up to 10 years. If the negative information found on your report is inaccurate, they are required to remove it. You must file a dispute with the credit bureaus for any inaccurate information.

Jason Vitug

Jason Vitug is a bestselling author, entrepreneur, and founder of phroogal.com and thesmilelifestyle.com. His purpose to help others live their best lives through experiential and purposeful living. Jason is also a certified yoga teacher and breathwork specialist and has traveled to over 40 countries.

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