WHAT IS CREDIT REPORTING?
Want to eliminate debt, but don't know where to start?

To eliminate debt, you need to understand your current financial situation. Your credit report contains a thorough list of your loans and credit card accounts as well as a summary of the activity on those accounts. Banks and credit grantors analyze your credit report because it reflects your ability to handle additional lines of credit and support additional debt. Continue reading to learn more about why you need to know what is on your credit report and specifically what creditors look for when evaluating credit.

An Overview of Credit Reporting

In their efforts to evaluate consumer credit worthiness, creditors depend on credit reporting bureaus to supply reports that provide more specific consumer information. Most creditors have automated systems that allow them direct access to credit reports from the different credit bureaus. Credit bureaus contain personal information, account history information, legal information, and information about inquiries. Some lending institutions use more than one type of credit report because they are required to as a measure of meeting lending requirements. Others use multiple sources to ensure that they are getting a more comprehensive background on a consumer's credit history. When a consumer completes a credit application, many creditors submit the personal information that is on the credit application to credit bureaus. This is how the credit bureaus compile personal information such as a consumer's name, employment information, address, social security number, marital status, and telephone number. By using a credit report, the creditors will be able to cross-reference the information that the consumer provides on their application with the information that the credit bureau accumulated through other credit applications. Many credit institutions hire companies that research and verify that the information on a consumer’s credit application is accurate. If you have an account with a creditor that reports to a credit bureau, your credit report will reflect a payment and account history. The information that a credit bureau reports regarding a consumer's history on a credit account is referred to as a "trade line". On your credit report, there should be a "trade line" for every creditor that reports account information to the credit bureau that is providing the report. Following is a summary of the information that is normally included in a "trade line" on a consumers credit report:

  • Name of the creditor
  • Account number (usually incomplete of coded for security purposes)
  • Type of account (installment loan or revolving)
  • Balance owed
  • Summarized payment history
  • Date the account was opened
  • Credit limit
  • Co-signers on the account
  • Date information was last reported to bureau
In addition to the information that is normally reported, a "trade line" may indicate the following:
  • If the account has been included in a bankruptcy proceeding
  • If there has been a repossession of collateral
  • If an account has been charged off
  • If an account has been turned over to collections

Not all credit institutions report to credit bureaus, but most of them do. Most credit bureaus report payment history in 30-day payment intervals because 30-day periods are reflective of monthly billing cycles and payment installments. Policies vary amongst creditors with regard to the threshold at which they report delinquency to the credit bureau. Some creditors do not report delinquency until the consumer's account reaches 60 days past due, while others report delinquency at 30 days past due. Some creditors do not report any account history to the credit bureau unless there is delinquency on the account. The "historical method" of reporting delinquency on your credit report will reflect the number of times that you fell more than 30, 60, 90, and 120 days behind on your payment obligations. Other credit reports utilize a rating system that assigns a "status" for each 30-day range of delinquency. This method is referred to as the "simple method of payment." An R-1 rating indicates an account that was current or paid "as agreed." An R-2 indicates that a consumer paid 30 days or more after the due date but less than 60 days after the due date. An R-3 indicates that the bill was paid 60 or more days after the due date but less than 90 days past due. An R-4 indicates that the consumer paid 90 or more days past due but less than 120 days. R-5 indicates that a consumer paid 120 or more days past their due date. R-7 usually means that a creditor repossessed collateral on the account and R-8 reflects that the account was turned over to collections. R-9 can be used to reflect many different statuses on an account. It may be used to reflect that a debt was discharged in bankruptcy, repossessed, foreclosed upon, or in collections. Credit reports often include a section that provides information that is considered public record such as tax liens, judgments, and arrests and convictions. Credit reports also give records of inquiries. Inquiries are records that reflect requests made by creditors to a credit bureau for a consumers credit report. Inquiries indicate the name of the creditor that requested the report and the date on which the report was requested.

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