What you need to know about your credit report

The Consumer Financial Protection Bureau (CFPB) recently announced that it would soon begin examining credit reporting agencies to confirm, among other things, that they are producing accurate credit reports and that consumers have ample ability to dispute errors on their reports.

“An accurate credit report is critical to a person’s financial future, and consumers need to be aware that the responsibility for reviewing their report lies with them,” said Gail Cunningham, spokesperson for the National Foundation for Credit Counseling (NFCC). “Even though consumers can obtain their credit report free of charge, the recent NFCC Financial Literacy Survey revealed that 62 percent of respondents had not ordered their report in the past 12 months.”

It is important to understand what a credit report is and what it isn’t. At its core, the purpose of a credit report is to provide those with a valid need a track record of a person’s credit history. Having a way to evaluate the risk of extending new credit is just as important to the consumer as it is to the business.

Among other things, the report contains information such as where a person lives, how many lines of credit have been applied for or opened, and how he or she manages credit. Credit reporting bureaus are a repository of information that has been provided to them. They sell the information to lenders, insurers, employers, and other businesses that use it as a tool when evaluating a person’s application for credit, insurance or employment.

There is often misunderstanding regarding credit reports. Many erroneously think that the credit report includes a credit score, a person’s race, income or medical history. One of the most common misconceptions is that the credit bureaus are involved in the approval or denial of credit, which is not true.

The reasons for obtaining a credit report are many, but include confirming accuracy before applying for credit, checking for identity theft, or verifying that outdated information has rotated off. Perhaps the most important reason is that the all-important credit scores are based on the information contained in the credit report.

If, upon review, consumers question the accuracy of the information contained in the report, the Fair Credit Reporting Act provides them with the opportunity to dispute the entry. Consumers should dispute the information directly with the credit reporting bureau through which the report was obtained. The bureau must then investigate the concern and correct or delete inaccurate or unverifiable information, usually within 30 days.

Anxious to find a quick-fix for a blemished credit file, consumers often fall prey to unscrupulous businesses which charge high fees but offer no legitimate help beyond what consumers can do for themselves at little or no cost. Warning signs are if a company offers to create a new identity and credit file, or guarantees to remove late payments or other negative information from a report. The smart consumer will check with the Better Business Bureau before becoming involved with a credit repair firm.

“Since the credit report is meant to be an accurate snapshot of a person’s credit history, consumers need to remember that if the report contains negative information that is true, it needs to remain a part of the report,” continued Cunningham. “Filing a frivolous dispute benefits no one.”

The CFPB’s announcement serves as a reminder of the importance of credit reports, and hopefully will inspire consumers to take the first step by ordering their report, examining it for accuracy, and disputing any errors.

Consumers can obtain their credit report free of charge once every 12 months from each of the three credit reporting bureaus by visiting AnnualCreditReport.com.

This post was provided by the National Foundation for Credit Counseling (NFCC). Money Management International is a member of the NFCC. The NFCC is the nation’s largest and longest serving national nonprofit credit counseling organization. NFCC Members annually help over three million consumers through close to 800 community-based offices nationwide.

Jessica Horton is a former copywriter and community manager at MMI.

  • The Consumer Federation of America (CFA) is an association of nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education. Today, nearly 300 of these groups participate in the federation and govern it through their representatives on the organization's Board of Directors.
  • The National Council of Higher Education Resources (NCHER) is the nation’s oldest and largest higher education finance trade association. NCHER’s membership includes state, nonprofit, and for-profit higher education service organizations, including lenders, servicers, guaranty agencies, collection agencies, financial literacy providers, and schools, interested and involved in increasing college access and success. It assists its members in shaping policies governing federal and private student loan and state grant programs on behalf of students, parents, borrowers, and families.

  • Since 2007, the Homeownership Preservation Foundation (HPF) has served as a trusted, neutral source of information for more than eight million homeowners. They are partnered with, and endorsed by, numerous major government agencies, including the U.S. Department of Housing and Urban Development and the Department of the Treasury.

  • The mission of the U.S. Department of Housing and Urban Development (HUD) is to create strong, sustainable, inclusive communities and quality affordable homes for all. HUD works to strengthen the housing market in order to bolster the economy and protect consumers; meet the need for quality affordable rental homes; utilize housing as a platform for improving quality of life; and build inclusive and sustainable communities free from discrimination.

  • The Council on Accreditation (COA) is an international, independent, nonprofit, human service accrediting organization. Their mission is to partner with human service organizations worldwide to improve service delivery outcomes by developing, applying, and promoting accreditation standards.

  • The National Foundation for Credit Counseling® (NFCC®), founded in 1951, is the nation’s largest and longest-serving nonprofit financial counseling organization. The NFCC’s mission is to promote the national agenda for financially responsible behavior, and build capacity for its members to deliver the highest-quality financial education and counseling services.