Everyone with a social security number or tax identification number who has a history of financial activity has at least one credit report. The information in this file, maintained by various credit reporting agencies, gives businesses a snapshot of your financial activity. They use this information to verify your identity, set rates for certain financial products, and make decisions about how much of a risk you present if they loan you money or extend credit.

Main categories in your credit report

Identity

This section helps businesses conducting a credit inquiry verify that they are viewing the correct credit report. It includes your full legal name, any other names you’ve used in the past, date of birth, employer, and social security number. It also may include your current address, past addresses, and your phone number.

Trade lines

Here, you’ll find a detailed list of your credit accounts. Information in this section comes directly from lenders. It includes the type of account, the date you initiated the account, the loan amount or credit limit, your payment history, and the balance on the account. Information from more than seven years ago should be removed from your credit report automatically.

Credit inquiries

This list has information about every business or financial institution that you’ve authorized to check your credit report. It also has information about companies that access your credit report for preapproval offers.

Collections and public records

Public records, available from county and state courts, appear in this section. Account balances for overdue debts owned by collection agencies, details about civil lawsuits, and bankruptcies are here, as well.

Credit bureau information

There are three main credit bureaus in the United States. Each has its own credit scoring system designed to help companies evaluate your creditworthiness quickly. Your credit score may be the determining factor in whether you can get a home loan, auto loan, or credit card. It’s based on the information in your credit file with each of the three credit bureaus.

Credit bureaus are for-profit business that are also publicly traded. The government does not own them, but they do have a set of laws that the credit bureaus must follow. The Fair Credit Reporting Act (FCRA) determines how these companies conduct business. This set of rules protects the interests of the consumer.

Equifax, TransUnion, and Experian make money by selling information to businesses that want to use it to determine whether or not to grant a loan or extend credit to an individual. Credit reporting agencies can provide the information, but they are not legally allowed to weigh in on the decision. They exist only to help businesses make the decision by providing analytical tools like credit scores as well as the contents of an individual’s credit file.

Lenders pay a fee to access each of your credit reports. Because the process can be expensive, they often choose to work with only one of the three credit bureaus. The three credit reporting agencies each collect and accept information independent of each other. They do not share information. For this reason, there may be slight differences in the contents of your three credit files.

How to check your own credit files

Everyone who has a credit file is legally entitled to receive a copy of its contents once every twelve months. The Federal Trade Commission (FTC) recommends that consumers use www.annualcreditreport.com to get a free copy of each of their credit reports from the three main credit bureaus. There are other ways to obtain your credit report, but many websites require you to put in a payment method. This is unnecessary if you use the FTC-approved website.

You can also get your free credit reports by calling (877) 322-8228. You can order all three reports at once. Some financial experts recommend requesting one credit report every four months so you can watch for any unauthorized activity.

Contact information for the three main credit reporting agencies:

• Equifax: P.O. Box 740241, Atlanta, GA 30374-0241, 1-800-685-1111
• Experian: P.O. Box 2104, Allen, TX 75013-0949, 1-888-EXPERIAN (397-3742)
• TransUnion – P.O. Box 1000, Chester, PA 19022, 1-800-916-8800

Warning about fake free credit report sites

If you search online for a way to access the free credit reports the law entitles you to, you’ll come across many imposter sites. The site may ask you to sign up for your free credit report but also require you to give them a credit card number or bank account access. If you fail to cancel their service within their trial period, you may be charged for accessing your file.

It’s important to be aware that annualcreditreport.com will never email you and ask you for personal identifying information. They will not call you and they will not bombard you with pop-up ads. If you receive any such communication, contact the Federal Trade Commission directly by emailing spam@uce.gov.

These sites may steal your personal information by posing as the FTC or other government agency. Experian, Equifax, and TransUnion will not call you and ask for personal identifying information. They will not send an email asking you for information, either. If you receive this type of communication, it’s probably a scam.

Understanding FICO scores

The Fair Isaac Corporation (FICO) is not affiliated with any of the three main credit bureaus. It’s a common misconception that there’s a connection. It is not a credit bureau, but it is a company that has a significant effect on the credit industry. FICO maintains the criteria for the FICO score, which uses information from credit files to assign a three-digit score (350-800) that provides an instant assessment of your creditworthiness. Higher scores mean you are a lower credit risk.

FICO provides a credit score for each of your three credit files at Experian, Equifax, and TransUnion. Because the information in these files may differ slightly, your credit scores for each of the three credit bureaus may also be different from each other.

Here’s how many lenders view your credit score as it relates to your creditworthiness:

Exceptional: 800 to 850

If your FICO credit score is between 800 and 805, you should be readily accepted for nearly any type of credit or loan. You’ll get the best terms and lowest interest rates.

Very good: 740 to 799

With a credit score that falls between 740 and 799, you’ll still get high-interest rates and reasonable terms on the financial products you choose. Credit cards with low introductory rates and good rewards programs are typically easy to get. A credit score in this range also puts a mortgage and auto lease or auto loan within reach.

Good: 670 to 739

If your FICO score is between 670 and 739, you won’t get denied for most credit. You may pay higher interest rates on credit cards or loans, though. Most lenders consider credit scores in this range acceptable. You should easily qualify for a mortgage if you meet all the other requirements of the loan company. You’ll also find that getting a lease for a vehicle with a credit score in this range is easy.

Fair: 580 to 669

With fair credit, or a score between 580 and 669, you can probably get a credit card, but you’ll pay a higher interest rate than those with better FICO scores. In some financial circles, you may be classified as a sub-prime borrower. For this reason, it’s crucial to be hyper-aware of the terms of any financial product, loan, or credit card you’d like to add to your credit file. You’ll pay higher interest rates, but you can still get approved for an auto loan and a mortgage under certain circumstances.

Poor: 300 to 579

With a credit score between 300 and 579, you may find it nearly impossible to get a mortgage or car loan. Credit cards are available, but the terms are often so unfavorable that it’s best to work on raising your FICO score before applying. This FICO score may indicate problems with debt, a poor repayment history, bankruptcy, default on loans, or repossession of a vehicle.

About bad credit

Having a low credit score could mean that you’ve had financial problems in the past. It may also suggest that you are new to credit and your file doesn’t contain much information. Either way, if you have a poor or fair credit score, it isn’t permanent.

The FICO credit scoring model gives the most weight to new information. So, paying your credit card bills, car loan, mortgage, and personal loans on time is crucial if you’d like to see your credit score rise over time.

Your credit score is a representation of how you’ve handled your finances in the past. It doesn’t include information about whether you paid your utilities or rent on time, though. Your credit file contains data from companies that have agreed to loan you money or extend credit to you in the past. If you’ve never had a loan, credit card, or mortgage, you probably don’t have much in your credit file.

Experian Boost could help you manage your credit report

Experian is launching a new credit program called Experian Boost that helps consumers use their payment history from utility bills to raise their Experian FICO credit score. It’s a service launching in 2019. Consumers must opt-in. This free service also offers additional benefits:

• Dark Web surveillance and triple scan that lets you know if your personal information has been compromised
• Immediate notification when Experian Boost becomes available
• Free FICO score and Experian credit report
• Score and report refreshed upon sign-in every 30 days
• Experian Data FICO score monitoring
• Experian credit monitoring with free alerts

How to fix incorrect information in your credit report

While you may receive offers for “credit repair” in exchange for a fee, the truth is that federal law provides you with a means by which to fix any errors you find in any of your three credit reports at no charge. You don’t need to hire a law firm, pay a high monthly fee, or spend money to fix a mistake that’s lowering your credit score or causing you to be denied for a loan.

When you review your credit report, look carefully for errors and any information that’s older than seven years. Under the FCRA, you can hold the organization that provided the incorrect information and the credit reporting company responsible for making a correction.

Here’s what you’ll need to request that incorrect information is removed from your credit reports:

• A copy of your credit report with the mistake circled or highlighted
• A letter that includes your complete legal name, current address, a request that the incorrect information be removed from your report, and information about why you believe the information in your report is false

Send the letter and copy of your credit report via Certified Mail with “return receipt requested” to the appropriate credit bureau. They’ll have 30 days to investigate your claim. During this time, they’ll contact the company that reported the information and ask for verification. If that company cannot or will not provide that verification, the credit bureau must remove the incorrect information from your file.

Sending a letter may seem like a pain, but considering how much more money you’ll pay in fees and interest if your credit score is lowered by incorrect information in your credit report, it’s important to take the long route as explained, here.

You’ll receive verification that your request was received, as someone at the credit bureau will have to sign for your letter. Shortly after mailing your request, you’ll receive a copy of their acknowledgment in the mail.

If your request results in a change, you are entitled to a full explanation in writing from the credit bureau as well as an additional free copy of your corrected credit report.

Your credit is personal and vital. It determines how much you’ll pay for a deposit on utility accounts, how much interest you pay on loans and credit cards, and it may even have an effect on whether you can get certain types of security clearance. Understanding what’s in your credit file is an essential part of becoming financially responsible.