Credit bureaus or consumer reporting agencies are companies that collect information about your payment history of your obligations.

These credit bureaus are in the business of collecting this information and then SELLING it to future creditors, employers, insurers, and anyone else who has a legal reason to request your information.

It’s important to understand how credit reports and credit scores work.

Three Major Credit Bureaus:

Equifax, Experian and TransUnion are the three main reporting agencies.

They collect information from one source and give it to another. They do not determine what information is or should be.

Sometimes there is confusion about what information they can and cannot report.

What goes into your credit file

PERSONAL INFORMATION

The personal information that will be included in your report will be your full name, aliases or nicknames, current and former addresses, your telephone number, your Social Security number, and any variations of that number used.

It includes your date of birth and previous and current employers.

Information about health or medical treatment, race, gender, ethnicity, political or religious preference should not be reported.

Credit information / What is reported

Sometimes referred to as ‘Tradelines’

This will show your individual accounts that you have opened or had activity within seven years. The creditor’s account number, current status, and whether your account has been delinquent.

Delinquencies are reported in 30-day intervals.

Chargeback means payments have been past due for 180 days for an open retail account (credit card: charge or unsecured) or 120 days for a closed retail account (personal car or home equity loan).

A charge-off means you still owe money and the business will try to collect it, but the account is no longer part of your active accounts receivable. This will most likely have a negative effect on your credit rating.

Other information reported will include the date the account was opened, the type of account, the credit limit, and whether it is a joint account or in your name only.

Public Records / Consumer Statements / Inquiries

PUBLIC RECORDS:

The public records section does not show good news. This section includes tax liens, judgments, court-ordered back child support, and bankruptcy.

CONSUMER STATEMENTS:

Consumers can place a statement of up to 100 words on their credit file. This is most used when a consumer disputes information contained in their credit file. If the creditor and the credit reporting agency disagree with the consumer and do not remove the negative information, the consumer has the option of placing a statement in their file disagreeing with their findings.

** Be careful when using this option. Don’t mistakenly enter personal information that every creditor will have access to. Writing a letter may be a better option when applying for a loan.

INQUIRIES:

Inquiries are requests from others to review your credit report. There are two types: inquiries initiated by you and those for other purposes, such as pre-approved offers of credit, employment, or account review.

How long the information is reported

Bankruptcy – Chapter 7: 10 years from filing

Civil Judgments: 7 years from filing

Tax liens: 15 years for non-payment / 7 years from the date of payment

Credit information (commercial lines): 7 years from the date of last activity

Consumer Declarations: 2 years minimum

Inquiries: 1 year for credit operations, 2 years for employment

credit scores

There is NO single credit score formula. A credit score is the process of assigning a numerical value to rate your level of credit risk.

How the FICO Score became:

Bill Fair and Earl Isaac thought they could estimate people’s credit risk by guessing how likely they were to pay off a new loan on time. The banks laughed at them at first, but they started having success with their product and the rest is history.

Credit bureaus have now leased computer space from Fair Isaac and can produce a credit score on demand. The funny thing is that banks don’t even know what goes into creating a credit score. This is considered a trade secret.

Fair Issac has created separate products for each credit bureau or financial institution and uses a unique formula, so you could end up with different scores from each credit bureau.

Don’t get hung up on one number, especially since you now know there really isn’t one right one. Instead, focus on the information contained in your report.

Free credit reports

It is important to monitor your report

You need to know what is being reported and whether that information is correct. Under the Fair and Accurate Credit Transactions Act, you are entitled to one free report each year from all three major credit reporting agencies.

This will also help stop identity theft, which is the fastest growing crime and fraud, victimizing more than 10 million people a year and costing billions of dollars.

Did you know that stolen identities are used up to 30 times and most victims only discover the theft after they have been denied a loan or contacted by a collection agency? You may already be a victim, many times, and not even know it.

You should take steps to protect your information, and an annual review of your credit report file is a good habit to get into.