Credit Reporting Agencies

Credit reporting agencies maintain files on millions of borrowers. Lenders making credit decisions buy credit reports on their prospects, applicants and customers from the credit reporting agencies.

Your report details your credit history as it has been reported to the credit reporting agency by lenders who have extended credit to you. Your credit report lists what types of credit you use, the length of time your accounts have been open, and whether you’ve paid your bills on time. It tells lenders how much credit you’ve used and whether you’re seeking new sources of credit. It gives lenders a broader view of your credit history than do other data sources, such as a bank’s own customer data.

Creating Your Credit Report

Your credit report does not really exist until you or a lender asks for it. It is then compiled by the credit reporting agency based on the information stored in that agency’s file. This information is supplied by lenders, by you and by court records.

Tens of thousands of credit grantors – retailers, credit card issuers, banks, finance companies, credit unions, etc. – send updates to each of the credit reporting agencies, usually once a month. These updates include information about how their customers use and pay their accounts.

Your credit report reveals many aspects of your borrowing activities. All pieces of information should be considered in relationship to other pieces of information. The ability to quickly, fairly and consistently consider all this information is what makes credit scoring so useful.

What’s in your Credit Report?

Although each credit reporting agency formats and reports this information differently, all credit reports contain basically the same categories of information.  Your social security number, date of birth and employment information are used to identify you.  These factors are not used in credit scoring.  Updates to this information come from information you supply to lenders.

  • Identifying Information
    Your name, address, Social Security number, date of birth and employment information are used to identify you.  These factors are not used in credit scoring. Updates to this information come from information you supply to lenders.
  • Trade Lines
    These are your credit accounts.  Lenders report on each account you have established with them.  They report the type of account (bankcard, auto loan, mortgage, etc), the date you opened the account, your credit limit or loan amount, the account balance and your payment history.
  • Credit Inquiries
    When you apply for a loan, you authorize your lender to ask for a copy of your credit report. This is how inquiries appear on your credit report.  The inquiries section contains a list of everyone who accessed your credit report within the last two years.  The report you see lists both “voluntary” inquiries, spurred by your own requests for credit, and “involuntary” inquires, such as when lenders order your report so as to make you a pre-approved credit offer in the mail.
  • Public Record and Collection ItemsCredit reporting agencies also collect public record information from state and county courts, and information on overdue debt from collection agencies.  Public record information includes bankruptcies, foreclosures, suits, wage attachments, liens and judgments.

Credit Inquiries

Will my FICO score drop if I apply for new credit?

If it does, it probably won’t drop much.  If you apply for several credit cards within a short period of time, multiple inquiries will appear on your report.  Looking for new credit can equate with higher risk, but most credit scores are not affected by multiple inquiries from auto, mortgage or student loan lenders within a short period of time.  Typically, these are treated as a single inquiry and will have little impact on the credit score.

The Basics

What is an “inquiry”?

When you apply for credit, you authorize those lenders to ask or “inquire” for a copy of your credit report from a credit bureau.  When you later check your credit report, you may notice that their credit inquiries are listed.  You may also see listed there inquiries by businesses that you don’t know. But the only inquiries that count toward your FICO score are the ones that result from your applications for new credit.

Does applying for credit affect my FICO score?

Fair Isaac’s research shows that opening several credit accounts in a short period of time represents greater credit risk.  When the information on your credit report indicates that you have been applying for multiple new credit lines in a short period of time (as opposed to rate shopping for a single loan, which is handled differently as discussed below), your FICO score can be lower as a result.

How much will credit inquiries affect my score?

The impact from applying for credit will vary from person to person based on their unique credit histories.  In general, credit inquiries have a small impact on one’s FICO score.  For most people, one additional credit inquiry will take less than five points off their FICO score.  For perspective, the full range for FICO scores is 300-850®. Inquiries can have a greater impact if you have few accounts or a short credit history.  Large numbers of inquiries also mean greater risk.  Statistically, people with six inquiries or more on their credit reports can be up to eight times more likely to declare bankruptcy than people with no inquiries on their reports.  While inquiries often can play a part in assessing risk, they play a minor part.  Much more important factors for your score are how timely you pay your bills and your overall debt burden as indicated on your credit report.

Does the formula treat all credit inquiries the same?

No. Research has indicated that the FICO score is more predictive when it treats loans that commonly involve rate-shopping, such as mortgage, auto and student loans, in a different way.  For these types of loans, the FICO score ignores inquiries made in the 30 days prior to scoring.  So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.  In addition, the score looks on your credit report for rate-shopping inquiries older than 30 days.  If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.  For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span.  For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span.  Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

What to know about “rate shopping.”

Looking for a mortgage, auto or student loan may cause multiple lenders to request your credit report, even though you are only looking for one loan.  To compensate for this, the score ignores mortgage, auto, and student loan inquiries made in the 30 days prior to scoring.  So, if you find a loan within 30 days, the inquiries won’t affect your score while you’re rate shopping.  In addition, the score looks on your credit report for mortgage, auto, and student loan inquiries older than 30 days.  If it finds some, it counts those inquiries that fall in a typical shopping period as just one inquiry when determining your score.  For FICO scores calculated from older versions of the scoring formula, this shopping period is any 14 day span.  For FICO scores calculated from the newest versions of the scoring formula, this shopping period is any 45 day span.  Each lender chooses which version of the FICO scoring formula it wants the credit reporting agency to use to calculate your FICO score.

Improving your FICO score.

If you need a loan, do your rate shopping within a focused period of time, such as 30 days. FICO scores distinguish between a search for a single loan and a search for many new credit lines, in part by the length of time over which inquiries occur.

Generally, people with high FICO scores consistently:

  • Pay bills on time.
  • Keep balances low on credit cards and other revolving credit products.
  • Apply for and open new credit accounts only as needed.

Also, here are some good credit management practices that can help to raise your FICO score over time.

  • Re-establish your credit history if you have had problems. Opening new accounts responsibly and paying them on time will raise your FICO score over the long term.
  • Check your own credit reports regularly, before applying for new credit, to be sure they are accurate and up-to-date. As long as you order your credit reports through an organization authorized to provide credit reports to consumers, such as myFICO, your own inquiries will not affect your FICO score.

How Credit Report Mistakes are made

When a credit report contains errors, it is often because the report is incomplete, or contains information about someone else.  This typically happens because:

  • The person applied for credit under different names (Robert Jones, Bob Jones, etc.).
  • Someone made a clerical error in reading or entering name or address information from a hand-written application.
  • The person gave an inaccurate Social Security number, or the number was misread by the lender.
  • Loan or credit card payments were inadvertently applied to the wrong account.

Want to dispute mistakes on your credit report? We can help you write a free letter in minutes.

Missing Accounts on your Credit Report

Your credit file may not reflect all your credit accounts. Although most national department store and all-purpose bank credit card accounts will be included in your file, not all creditors voluntarily supply information to the credit bureaus:  Some travel, entertainment, gasoline card companies, local retailers, student loan lenders and credit unions are among this group of non-reporting creditors.

If you’ve been told you were denied credit because of an “insufficient credit file” or “no credit file” and you have accounts with creditors that don’t appear in your credit file, you might consider asking your creditors to begin reporting your credit information to credit bureaus.  It won’t hurt to ask, but keep in mind that creditors are not required to report consumer credit information to credit bureaus.  Another possible option is to move your account to a different creditor who does report regularly to credit bureaus.

Fixing Credit Report Errors – What to Do?

To insure that the mistake gets corrected as quickly as possible, contact both the credit bureau and organization that provided the information to the bureau.  Both these parties are responsible for correcting inaccurate or incomplete information in your report under the Fair Credit Reporting Act.

First, tell the credit bureau in writing what information you believe is inaccurate.

The credit bureau must investigate the item(s) in question – usually within 30 days – unless they consider your dispute frivolous. Include copies (NOT originals) of documents that support your position. In addition to providing your complete name and address, your letter should:

  • Clearly identify each item in your report you dispute.
  • State the facts and explain why you dispute the information.
  • Request deletion or correction.

You may want to enclose a copy of your report with the items in question circled.  Your letter may look something like this sample. Send your letter by certified mail, return receipt requested, so you can document that the credit bureau received your correspondence.  Keep copies of your dispute letter and enclosures.

Second, write to the appropriate creditor or other information provider, explaining that you are disputing the information provided to the bureau.

Again, include copies of documents that support your position.  Many providers specify an address for disputes. If the provider again reports the same information to a bureau, it must include a notice of your dispute. Request that the provider copy you on correspondence they send to the bureau.  Expect this process to take between 30 and 90 days.

In many states, you will be eligible to receive a free credit report directly from the credit bureau, once a dispute has been registered, in order to verify the updated information. Contact the appropriate credit bureau to see if you qualify for this service.

Credit Bureau Investigation – What if you Disagree?

An investigation may not resolve your dispute with the credit bureau.  If that’s the case, ask the credit bureau to include your statement of the dispute in your file and in future reports.  If requested, the credit bureau also will provide your statement to anyone who received a copy of the old report in the recent past. There usually is a fee for this service.

If you tell the information provider that you dispute an item, a notice of your dispute must be included anytime the information provider reports the item to a credit bureau.

If the investigation does not produce the results you need and inaccurate information in your credit report is causing you harm, you may consider hiring a lawyer you help to resolve your dispute as a last resort.

Credit Reports – Know your Rights

Your credit payment history is recorded in a file or report.  These files or reports are maintained and sold by credit bureaus.  You have a credit record on file at a credit bureau if you have ever applied for a credit or charge account, a personal loan, insurance, or a job. Your credit record contains information about your income, debts, and credit payment history.  It also indicates whether you have been sued, arrested, or have filed for bankruptcy.

The Fair Credit Reporting Act (FCRA) is designed to help ensure that credit bureaus furnish correct and complete information to businesses to use when evaluating your application.

Your rights under the Fair Credit Reporting Act:

  • You have the right to receive a copy of your credit report. The copy of your report must contain all of the information in your file at the time of your request.
  • You have the right to know the name of anyone who received your credit report in the last year for most purposes or in the last two years for employment purposes.
  • Any company that denies your application must supply the name and address of the credit bureau they contacted, provided the denial was based on information given by the credit bureau.
  • You have the right to a free copy of your credit report when your application is denied because of information supplied by the credit bureau. Your request must be made within 60 days of receiving your denial notice.
  • If you contest the completeness or accuracy of information in your report, you should file a dispute with the credit bureau and with the company that furnished the information to the bureau. Both the credit bureau and the furnisher of information are legally obligated to investigate your dispute.
  • You have a right to add a summary explanation to your credit report if your dispute is not resolved to your satisfaction.

Average Credit Statistics

As a company that helps the nation’s largest banks and financial institutions assess credit risk, Fair Isaac is often asked to describe the credit use of a typical consumer.  In researching the answer, we discovered that consumers vary immensely in what types of credit they use and how they use it.

By analyzing a representative national sample of millions of consumer credit profiles, Fair Isaac was able to survey the panorama of credit activity across the U.S. The following statistics reflect the average use of credit by today’s consumers.

Number of Credit Obligations

On average, today’s consumer has a total of 13 credit obligations on record at a credit bureau.  These include credit cards (such as department store charge cards, gas cards, or bank cards) and installment loans (auto loans, mortgage loans, student loans, etc.).  Not included are savings and checking accounts (typically not reported to a credit bureau). Of these 13 credit obligations, 9 are likely to be credit cards and 4 are likely to be installment loans.

Past Payment Performance

On average, today’s consumers are paying their bills on time.  Less than half of all consumers have ever been reported as 30 or more days late on a payment. Only 3 out of 10 have ever been 60 or more days overdue on any credit obligation. 77% of all consumers have never had a loan or account that was 90+ days overdue, and less than 20% have ever had a loan or account closed by the lender due to default.

Credit Utilization

About 40% of credit card holders carry a balance of less than $1,000. About 15% are far less conservative in their use of credit cards and have total card balances in excess of $10,000. When we look at the total of all credit obligations combined (except mortgage loans), 48% of consumers carry less than $5,000 of debt.  This includes all credit cards, lines of credit, and loans-everything but mortgages.  Nearly 37% carry more than $10,000 of non-mortgage-related debt as reported to the credit bureaus.

Total Available Credit

The typical consumer has access to approximately $19,000 on all credit cards combined. More than half of all people with credit cards are using less than 30% of their total credit card limit.  Just over 1 in 7 are using 80% or more of their credit card limit.

Length of Credit History

The average consumer’s oldest obligation is 14 years old, indicating that he or she has been managing credit for some time.  In fact, we found that 1 out of 4 consumers had credit histories of 20 years or longer.  Only 1 in 20 consumers had credit histories shorter than 2 years.

Credit Inquiries

When someone applies for a loan or a new credit card account – in short, any time one applies for credit and a lender requests a copy of the credit report – this request is noted as an “inquiry” in the applicant’s credit file.  The average consumer has had only one inquiry on his or her accounts within the past year.  Fewer than 6% had four or more inquiries resulting from a search for new credit.

Contacts and Resources

Equifax
equifax.com
PO Box 105069
Atlanta, GA 30349
(800) 525-6285

Experian
experian.com

TransUnion
transunion.com
PO Box 6790
Fullerton, CA 92634
(800) 680-7289

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