Your Annual Credit Report: What is it and is it Accurate?

Annual credit report

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Credit Sesame’s guide to your annual credit report.

A credit report is a detailed list of your borrowing and repayment history.

Credit reports are used by everyone from lenders to landlords to potential employers. What those users have in common is that they’re looking at your credit report to see what kind of risk you represent.

There’s another very important use for credit reports. Consumers can use them to see what their credit history says about them. It’s important to know this so you can clear up mistakes, work on upgrading your credit history and make decisions that will improve your chances of getting credit.

Federal law makes it easy to get this information via a free annual credit report. You can also get non-stop credit monitoring to make sure your access to information about you is keeping pace with today’s always-changing digital world.

This article will explain how you can make good use of your credit reports. Topics covered include:

What is a Free Annual Credit Report?

Long before people had to worry about the digital footprint their social media posts and profiles were leaving, credit reports were telling stories about them for all to see.

There are three major credit bureaus that put these reports together: Equifax, Experian and TransUnion.

They base their reports on information provided by companies that regularly extend credit to consumers. That includes credit card companies, banks and other lenders. Credit bureaus also get information from collection companies.

By compiling this information, credit bureaus put together a profile of your credit use. This includes:

  • A list of companies that have given you credit or loaned you money
  • The amount of each loan or credit limit
  • The amount and timing of each payment you’ve made, including whether it was on time
  • Any missed payments or unpaid debts
  • Information on which lenders have looked at your credit report recently
  • Any bankruptcy information

Much of this information is provided on a voluntary basis, so it may not be a complete record of your credit use.

Also, companies may report to some but not all of the three credit bureaus. That means credit reports from different bureaus may differ.

By law, you’re entitled to see what these credit reports say about you. Each of the three credit bureaus is required to provide you with one free credit report per year.

Why you should regularly check this information and how to get it will be explained later in this article.

How Does an Annual Credit Report Work?

The information in your credit report is used in a variety of ways. It’s a big part of your financial identity, and because of that businesses will regularly use it to make judgements about you.

You probably expect to have your credit checked if you want a loan, but there are other ways your credit report is used that may surprise you. Here are some examples different uses for you credit report:

  • Loan applications. Loans involve repayment periods that can stretch over many years. Before making that kind of long-term commitment to you, lenders need some indication that you are likely to make your payments. A credit report can tell them how diligent you’ve been in the past, and how stretched your credit usage is now.
  • Credit card applications. Credit cards give you on-demand access to credit. Giving you that access requires trust, and that’s where your credit report comes in. It will show whether you’ve used credit responsibly in the past and can be trusted to continue to do so.
  • Car rentals. A car rental is a form of loan, only instead of letting you borrow money the car rental company is letting you borrow a vehicle worth tens of thousands of dollars. For some situations, such as using a debit card to rent a car, the company may require a credit check.
  • Insurance. Research has found a link between people’s credit history and their likelihood to file insurance claims. So, some insurance companies take credit history into consideration when issuing policies. However, this practice is controversial and is banned in some states.
  • Apartment rentals. Landlords want responsible tenants who can pay the rent on time. What better way to assess whether you meet that description than to check your credit report?
  • Prospective employers. Your credit report can provide some history on how reliable you are. It can also indicate whether you have the kind of financial distractions that can affect job performance. That’s why many employers are now using credit checks as part of their hiring processes.

What these diverse uses for your credit report have in common is that they generally go beyond just checking your credit score. In fact, your credit score isn’t actually in your credit report.

Financial companies may use information in your credit report to calculate your credit score. However, there are different ways of calculating a credit score, so the score itself is not part of your credit report.

Is Your Annual Credit Report Accurate?

As you can see, your credit report can affect several aspects of your life. That makes it very important to ensure that the information on that report is accurate.

Credit reports are assembled from a variety of sources, and over a period of years. Along the way, things can go wrong from time to time. Here are some examples of how inaccurate information may find its way onto your credit report:

  • Fraud. This is a major problem. Criminals may use your personal information to open bogus credit accounts in your name. Then they spend the money and don’t pay the bills. That can leave a trail of bad debts in your name. Regularly checking your credit report is a good way to spot fraudulent activity.
  • Mistakes. With so much information going into your credit report, mistakes can happen. Perhaps a missed payment is recorded in your name, or an account you closed is still showing as open. Checking your credit report is the only way to make sure that what that report says about you is true.
  • Outdated information. Your financial history is changing all the time. New money is borrowed, payments are made, accounts are opened and closed. It can take time for information to hit your credit report, but you need to make sure that report is up-to-date before someone does a credit check.

If you find any inaccuracy on your credit report, contact the credit bureau that assembled the report to give them the correct information. Documentation is key. Payment records and copies of correspondence with creditors may be necessary to prove that your true credit history is different from what their records show.

How Do I Get My Annual Free Credit Report?

Since a lot can depend on your credit report, federal law entitles you to access that information. Each of the three credit bureaus is required to provide you with one free credit report each year, upon request.

You don’t even have to worry about how to contact three different credit bureaus. You can obtain a credit report from any of the three at www.annualcreditreport.com, or by calling (877) 322-8228.

Since you are entitled to one free credit report per year from each of the three credit bureaus, the Consumer Financial Protection Bureau suggests that you request each one at different times of the year. That way you can get more frequent updates on your credit record.

You can also request additional reports at a cost of $13.50 each. You may also be entitled to extra free reports in certain situations such as:

  • You’ve been turned down for credit, insurance or employment based on your credit report
  • You have reason to believe there’s been fraudulent credit activity in your name
  • You are unemployed and are planning to apply for a job within the next 60 days
  • You receive welfare benefits
  • You live in a state that mandates free credit reports

Face it – it’s likely that people are going to be looking at your credit report. It’s in your interests to make sure what they see is accurate.

Get Ongoing Credit Report Monitoring Free From Credit Sesame

As valuable as it is to get your annual free credit report, these days information flows so rapidly that it requires more continuous credit monitoring.

Credit Sesame makes that easy by offering free credit monitoring. This includes continuous monitoring, alerts about changes to your credit report, and access to your current credit report.

This service is totally free, and available from Credit Sesame just by answering a few simple questions. Taking this easy step will allow you to be aware of what your credit report says about you at all times, and help prevent your information from being misused.

Disclaimer: The article and information provided here is for informational purposes only and is not intended as a substitute for professional advice.

Richard Barrington
Financial analyst for Credit Sesame, Richard Barrington earned his Chartered Financial Analyst designation and worked for over thirty years in the financial industry. He graduated from St. John Fisher College and joined Manning & Napier Advisors. He worked his way up to become head of marketing and client service, an owner of the firm and a member of its governing executive committee. He left the investment business in 2006 to become a financial analyst and commentator with a focus on the impact of the economy on personal finances. In that role he has appeared on Fox Business News and NPR, and has been quoted by the Wall Street Journal, the New York Times, USA Today, CNBC and many other publications.

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