By Arnold Kling
This article explains what to look for when you order a copy of your credit report.
One of the ways that the Internet is helping consumers is that it makes it easy to order a copy of your credit report. This can be useful information when you are getting ready to apply for a mortgage loan, or just to give you a general idea about where you stand from a credit perspective.
What You Will See
The major credit repositories collect three types of information. What you see will include whatever applies to you in all three areas:
- Public Record Data.
This usually is stuff that is not good. The term “public record” means information that is recorded by government authorities, including courts. So, if you have declared bankruptcy, or there is a tax lien on property that you own, or there is some other financial matter in which a court or government agency has recorded an action against you, this will show up in the search of public records.
If you have adverse public record information, this does not preclude you from getting a loan, but it does make it difficult to be rated as an “A” borrower (a term often used to describe people whose credit is viewed as low risk by lenders). Once the issue has been resolved, after 5 years have passed you often can restore a low-risk credit rating. In the meantime, you probably will have to write a letter to any potential lender to explain the situation (lenders call these “cry letters”).
- Trade Lines.
A trade line is a status report on an existing account where you have credit, such as a store charge card or major credit card. The lenders with whom you have these accounts voluntarily supply the status information to the major repositories of credit information.
A trade line covers an account that you now have that gives you either installment credit (a fixed loan that you pay off in regular installments ) or revolving credit (a loan whose amount can vary depending on purchases, such as a major credit card or department store credit card). The credit report will show whether you are current or behind payments on the account, and it will show how often you have fallen behind within the recent past (usually one year or three years).
If the trade line section shows only 1 or 2 missed payments, and no current delinquencies, you are fine. If it shows you as being currently delinquent, it is strongly recommended that you remedy the situation before you apply for new credit, such as a mortgage loan.
This shows recent inquiries made to the credit reporting company by companies from whom you have requested a credit card or some other form of credit.
What You Won’t See
What you will not see is your overall credit rating. There are companies that are separate from the credit repositories but who work closely with them to produce overall credit ratings for individuals, called credit scores. Credit scores are used increasingly by mortgage lenders to make decisions.
For now, the credit scoring companies resist giving credit scores directly to consumers (a lender who pulls your credit score may choose to reveal your credit score to you, but the lender is not obliged to do so). Fair Isaac the leading credit scoring company, justifies this by saying that “the number by itself might not hold much meaning to you.”
Imagine a teacher trying to justify keeping your grade a secret because “the number by itself might not hold much meaning to you.” In my opinion, Fair Isaac is showing condescension and arrogance in their attitude.
As of today, I know of no way for consumers to request their own credit scores. Only if a lender is willing to provide your score can you obtain it. Meanwhile, here are some guidelines about credit scores:
- Public record data that is less than 5 years old can have a severe impact on your credit score.
- Credit accounts that currently are delinquent can have a major adverse impact on your credit score.
- A track record of “serious delinquencies” (90 days or more) can have a major adverse impact on your credit score.
- A high “utilization rate” (your current credit balances use up most of your available credit) can have an adverse impact on your credit score.
- A large number of recent inquiries (indicating that perhaps you are aggressively seeking credit) can have a modest adverse impact on your credit score.
What To Do with Your Credit Report
- Review the report for accuracy. Be particularly careful to check your personal identification information. If the report uses a misspelled name, address, or social security number, this is important to get straightened out.
- See if there are issues in the report that could create problems in your credit rating.
- Try to resolve the issues that you can–for example, by paying off any accounts that currently are delinquent, or reducing your utilization rate.
If the report has inaccuracies, then you may wish to contact all three major credit repositories, in order to clear up the issues as quickly as possible.
What Not To Do
- Do not pay a credit doctor to “fix” your credit report–those services are scams. But do examine your report carefully for errors, because correcting errors can prevent major problems.
- Be careful about signing up for a service to “monitor” your credit report. These services are fairly expensive, and often they use a “free” copy of your credit report as a loss leader. I personally would never pay the $50 a year or more that these services charge.
- Try to avoid over-paying for a credit report. The standard prices I have seen are about $10 or less for a report from one credit repository, and about $30 for a report from all three. If you have no reason to suspect that there are errors in your credit report, then my advice would be to buy the $10 report that comes from one repository. If that report turns out to require corrections, then you can go back and order a 3-repository report.