Credit Reporting

The information in your credit report is the source data for your FICO score. If you're motivated to improve your FICO, you should start with a thorough understanding of your report.

There are three main credit reporting bureaus: Equifax, Experian, and TransUnion. These agencies develop and maintain consumer credit reports based on information they obtain from lenders. If you have no credit history, you'll have no credit report. But if you've ever opened a credit card or taken out a mortgage, or a car or personal loan, you can bet that one or more of these agencies has a file on you.

Because not all lenders report to all three bureaus, your credit report might be slightly different from one bureau to the next. That said, the idea behind credit reporting is consistent: Each agency keeps a record of the type of credit you have available, how much you owe, how long your credit accounts have been open, and whether or not you pay your bills on time. The details of each report typically include:

• Your name, social security number, date of birth, and current address.
• A summary of each reported account, including lender's name, type of credit, balance, and payment history.
• All lender inquiries into your credit history over the past two years.
• Negative items including missed payments, bankruptcies, tax liens, foreclosures, and legal judgments.

Depending on your background, this could be an extremely complex set of data. That's why there's a need for a scoring system-it provides lenders with a scale for making quick, objective assessments on your credit worthiness. If there was no credit scoring system, the debt qualification process would take much longer and the cost of managing debt would be much more expensive.

Checking Your Credit Report

The credit bureaus must provide you with one free copy of your credit report annually. You should take advantage of your free report in order to:

• Verify that your credit information is accurate.
• Check for signs of identity theft.
• Gain a better understanding of how lenders see you.

You can access your free credit reports at www.annualcreditreport.com. Or you can purchase your credit report at any time by contacting Equifax, Experian, or TransUnion directly. See www.equifax.com, www.experian.com or www.transunion.com for further information.

Experts recommend checking your credit report a few months prior to a large debt purchase. That way, you'll have time to dispute any inaccurate information before submitting your loan application. As you'll see in Chapter 4, you can also start taking steps to improve your FICO score in the hopes of obtaining a lower interest rate on that big loan.