Credit Reporting 101*
This year, it's not just the kids who are heading back to school -TrueCredit is giving you a session of Credit Reporting 101. We tackled Credit Scoring 101 in July; now let's take on the fundamentals of the credit reporting system. From the big three credit reporting agencies to your rights under the Fair Credit Reporting Act, this course will help you navigate the credit reporting maze.
The Credit Reporting Agencies - TransUnion, Equifax and Experian (formerly TRW) are the three national credit reporting agencies that keep records on consumers. The reporting agencies work with lenders, creditors, insurers and employers to update and distribute your information to the appropriate institutions.
Here's an example of how the system works:
- When you apply for a new credit card the creditor requests a copy of your financial history from the reporting agencies.
- The creditor uses your Credit Scores along with income and debt information to determine what rates to offer.
- You start to use the new credit card and the creditor reports your activities to the credit reporting agencies every 30 days.
- The credit reporting agencies update your credit report as they receive new information from creditors or lenders.
- Your credit profile changes based on your financial activity.
- The next time you apply for a credit card or loan, the process repeats.
Your Credit Report is Divided into Six Main Sections
When you open a new account, miss a payment or move, these sections are updated with new information.
- Consumer information (address, birthday and employment);
- Consumer statements;
- Account histories;
- Public records;
- Inquiries; and
- Creditor contacts.
The old records will stay on your credit report for about 7 years. Not all creditors report to all three agencies and the agencies don't share their data so your reports from TransUnion, Equifax and Experian could be substantially different from each other. That's why it's important to check your Credit Reports every few months to ensure that the information is accurate and up-to-date.
Under the Fair Credit Reporting Act, consumers are protected from having inaccurate information on their credit reports. If you find an inaccurate record on your report, try contacting the creditor or lender associated with the mark first. These companies can usually correct the mistake and send an update to the credit reporting agencies. If you can't make progress this way, you can also dispute the inaccuracy directly with the credit reporting agencies.
Working the System
Keeping your credit reports healthy will improve your Credit Scores and help get you the best rates on major purchases. We recommend that you check your credit reports every 3-6 months in order to guard against damaging inaccuracies and identity fraud. Routine check-ups along with paying your bills on time, keeping your credit card balances below 35% of their limits and correcting any negative inaccuracies will help you maintain a healthy credit profile.
*The Credit Reporting 101 outlined above are courtesy of TrueCredit.