FINANCIAL FRESHMAN #021

TL;DR → Your credit report is a detailed record of your financial history, and reviewing it regularly is crucial for maintaining good credit. It includes information about loans, payment history, and creditworthiness. To stay on top of your finances, pull your report from the official sources, check for errors, and understand how your credit is being evaluated by lenders, landlords, and employers.

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Why Bother?

If you’re a college student or someone who has recently graduated, pulling and reviewing a credit report may not be high on your to-do list. The truth is that getting your hands on this vital document is easier than you might expect, and the information it contains is essential for shaping your financial future.

Let’s start with the basics. A credit report is essentially a detailed record of your credit history that is maintained by credit bureaus. It includes information about the loans you have taken out, your debt payment history, and a snapshot of your overall creditworthiness. However, this information is not just for your eyes. Future lenders, landlords, and even some employers will use it to evaluate your financial responsibility.

It’s in your best interest to review this information to ensure it is accurate, however a 2020 study by LendingTree found that just a third of Americans had reviewed a credit report in the last year. Ouch.

Don’t be part of the 66% that are flying blind. With respect to your credit report, you need to know how to Access It, Understand It, and Act on It.

Step #1: Access It

In recent years, it has become more common to see credit scores and report previews within banking apps, such as those for Wells Fargo and Chase. This information is certainly valuable, but these are often considered educational credit reports and scores, and they will have discrepancies compared to what you pull directly from the source.

Before accepting these previews at face-value, here are a few potential pitfalls to keep in mind:

1. Different Scoring Models: Many of these educational tools use VantageScore, while the overwhelming majority of lenders will use your FICO score. This discrepancy can make the “preview” information look more positive or negative than it may look to an external inquirer.
2. An Incomplete Picture: These educational tools often emphasize the credit score rather than the underlying report. This can cause users to overlook critical details that may impact their credit profile.
3. No Dispute Process: These educational sources won’t provide a way to dispute errors. If you find an error that needs attention, you’ll have to go directly to the source anyway.
4. Marketing Bias: These tools may be funded by affiliate marketing, which may unfortunately lead to suggestions that are not in your financial best interest.

The direct source that we’re alluding to is the only credit report source that is sanctioned by the Consumer Financial Protection Bureau, and that is AnnualCreditReport.com.

From the home page of this site, you can start the process by clicking “Request yours now!” from the banner at the top.

On the next screen, you can click the green “Request” button to provide the necessary information.

Once your information is provided, you’ll be prompted to select those credit bureaus that you want to review a report from.

After this, you’ll verify your email address and phone number, and then you’re in the clear.

Step #2: Understand It

The format of your credit report will not be identical across these three bureaus, but there are common sections that you can expect to find in each one. Understanding these sections is key to reviewing this information for accuracy.

Across your reports, you can expect to find:

1. Personal Information: This section will include your name, current and past addresses, your SSN, and employment history.
2. Account Information: This portion will list details regarding your credit accounts, including student loans, credit cards, mortgages, or personal loans. It will include the type of account, payment history, as well as the balance as of the last time it was reported to that particular bureau.
3. Public Records: If relevant, this section of your credit report will include bankruptcies, liens, or judgements.
4. Credit Inquiries: This section will highlight those external parties that have inquired to see your credit, as well as when they inquired. It will be sorted into hard inquiries (from lenders) and soft inquiries (for informational or preapproval purposes).
5. Collections: Lastly, a portion of your credit report will highlight those debts, if any, that have been sold off to collection agencies.

With one of your credit reports in hand, use these 5 categories to take an inventory of the information you see.

Step #3: Act on It

Chances are, all information on your credit report will be accurate, and no action will be required from you. If that is the case, acting on this information simply means continuing to follow those behaviors that your report says are positively impacting your credit.

If you find some inaccuracies on your credit reports, you may have to contact someone to initiate a dispute. Below are a number of things to look out for, as well as what to do about them. This is certainly not a complete list, but it’s likely that any credit report errors will fit into one of these eight categories.

Final Thoughts

Reviewing your credit report may seem like a daunting task, but it’s an essential step in taking control of your financial future. By understanding what is on your report, spotting errors, and staying on top of your credit, you can set yourself up for success.

Remember, your credit report is more than just a score, it’s a snapshot of your financial life that can impact everything from loan approvals to job opportunities. Take the time to access, understand, and act on this document.