Managing Debt: Understanding Your Credit Report

Managing Debt: Understanding Your Credit Report

Eileen St. Pierre, The Everyday Financial Planner

There’s more to having good credit than having a high credit score.  You also need to understand what is in your credit report, because it’s seen by a lot of people and organizations, including:

  • Your bank or credit union
  • Credit card issuers and other lenders
  • Landlords
  • Insurance agencies
  • Utilities and cell phone companies

If you are looking for a job, a prospective employer may ask your permission to do a background check before hiring you. Depending on the employer and the job, that background information might include your credit report.

  • You’re not out of the woods if you pass the initial background check – your employer is also allowed to use your credit report to consider you for retention, promotion or reassignment.
  • This is especially important for those in the military – inability to manage your finances can lead to the loss of your security clearance.

In a sense, your credit report provides a type of character reference.  It has information about

  • where you live
  • where you work
  • how you pay your bills
  • all the different credit accounts in your name, along with the amounts owed and amount of credit lines
  • length of your credit history
  • hard credit inquiries
  • public records, including collections and whether you have filed for bankruptcy

How can I get a copy of my credit report?

There are three different credit reporting agencies:  Experion, Equifax, and TransUnion.  Although each agency formats and reports this information differently, all credit reports contain basically the same categories of information.

  • You can receive a free copy of your credit report every 12 months from each of these agencies at www.annualcreditreport.com or by calling 1-877-322-8228.
  • Some people will pull their credit report with one credit reporting agency every 4 months instead of pulling all three all at once.  This allows them to monitor their credit throughout the year.
  • You will need to provide your name, address, Social Security number, and date of birth. To maintain security, each agency may ask you for some information that only you would know.
  • Credit.com and Adventures in Education provide interactive lessons on reading your credit report.

How long do items stay on my credit report?

Most negative information like late payments, foreclosure, Chapter 13 bankruptcies, paid tax liens, and court judgments will stay on for 7 years.

  • Unpaid debts that have been charged off or sent for collection will age off after 7.5 years.  That doesn’t mean you no longer owe the money; they just don’t appear on your credit report any more.  If you are sued for the debt, the judgment will then appear on your credit report.
  • Chapter 7 bankruptcies will stay on your report for 10 years and unpaid tax liens for 15 years.
  • The older the item, the less impact it will have on your credit score.

The next column in the Managing Debt series will discuss how to fix errors on your credit report.  Visit my Debt Management page for more information.