Consumer Tips

How to Get and Understand Your Credit Reports & Credit Score

Union Plus Consumer Credit Team

December 15, 2016

What is a Credit Report?

If you have ever opened a credit card account, financed a car or borrowed money from a bank, it’s tracked in a credit report, a detailed file about your personal credit history. Credit reports record your loans, credit cards, payments, outstanding debts, and other financial obligations.

The information in your credit report is supplied by companies that have given you credit or loaned you money. These creditors (such as banks, credit card companies, and department stores) provide regular updates about your credit accounts and loans to credit reporting bureaus. Credit reporting bureaus keep the information in a database and then provide it to lenders when you apply for a new credit card or loan.

Whenever you apply for a loan or credit, lenders use your credit report to decide whether they can trust you to pay back the money you have borrowed.

Your credit report contains key information  about you and your finances, which include:

• Current and previous addresses and employers, social security number, and date of birth
• Public record information including liens, judgments, and bankruptcy filings
• Outstanding debts that have been sent to a collection agency
• A list of your credit accounts and loans including:
  • Current and past payment information (including late payments)
  • Current balances on your credit cards
  • Current amounts of outstanding loans
• Overdue child support payments
• Credit requests made by you or a company

What do Lenders Look For?

There are several factors in your credit report that lenders may consider when deciding whether to give you a loan or credit account. Lenders review your credit reports to decide whether or not to lend you money based, in part, on the history they see on your credit report. And, they use your credit score to determine how much of a risk you are — typically, a higher credit score indicates less credit risk for the lender. Lenders look at your:

• Payment track record
• Current debts
• Credit history
• New accounts
• Types of credit

How Does the FICO Credit Score Affect You?

FICO scores range on a scale from 300 to 850 — the higher the better. Generally speaking, a credit score that falls below 600 is considered fair to poor and a score of 720 or higher is considered very good to excellent.

Your credit score can affect how much money a lender will lend you, and at what interest rate. Even a 50-point difference in your credit score can help you get a better interest rate on a loan, which can save you thousands of dollars over the life of the loan.

According to Fair Issac Corporation’s website, your credit score is calculated using information about:

• Your history of on-time payments (35%)
• The amount of money you owe (30%)
• The length of your credit history (10%)
• The number of recently opened accounts and inquiries to your credit report (10%)
• The types of credit you use (10%)

Request Your Credit Report and Score

U.S. law requires the three major credit bureaus (Equifax, Experian, and TransUnion) to provide a free credit report once a year, at your request.  

You can access your credit report from the three credit bureaus by requesting the report online at www.AnnualCreditReport.com, by calling 877-322-8228, or by mailing an Annual Credit Report Request form to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA 30348-5281.

You are not obligated to purchase or sign up for anything to get your free report. The free credit reports do NOT include your credit score.  You will be offered the chance to purchase your credit score as you order each credit report. 

 You should review the report thoroughly to make sure the information is accurate, and watch out for: 

• Incorrect account balances. If you discharged (wiped out) a debt in bankruptcy, for example, that account should list a zero balance.
• Wrong dates for negative credit items. Make sure the dates for negative credit items (such as bankruptcy, foreclosure, accounts charged off as a bad debt) are correct.  Otherwise, that negative information may be reported longer than allowed by law.
• Unpaid tax liens. If your credit report lists a tax lien that has not been paid, make sure you resolve it with the IRS, since unresolved tax liens can be reported indefinitely. If you can't pay the full balance, talk with a tax professional about settling the debt for less through an Offer in Compromise.
• Duplicate collection accounts. If an account has been sent to collections, only two entries should appear. The first one will be the original account with the creditor, and will usually be listed as a "charge off," meaning the debt was not paid and written off as a bad debt. There may be a second listing from the collection agency that is trying to collect. If the debt was assigned to multiple collection agencies, however, only the most recent collection account should be listed. 
• Unpaid collection accounts. If your report lists collection accounts that you haven't paid, do your homework before you decide how to proceed. Collection accounts can only be reported for seven and half years from the date you first fell behind with the original creditor. That's true whether you pay them or not. If you don't have the money to pay all your accounts in full, collection agencies may be willing to accept a smaller lump sum payment to resolve the debt.