If you're like many consumers, you probably have questions about what goes into your credit report and who uses it. Here is an overview that we hope will address many of your questions and concerns.

What is a credit report?

A credit report is a summary of your financial reliability—for the most part, your history of paying debts and other bills. It is prepared by credit bureaus (also known as credit reporting agencies) primarily for use by lenders, employers and others who, under the federal Fair Credit Reporting Act (FCRA), have a legitimate need for the information, such as when you apply for a loan, insurance policy, apartment or job. The wealth of information gathered by credit bureaus, coupled with the speed of today's computer systems, explains why consumers can quickly get loans and other services, including approvals of certain credit applications in minutes.

What is in my credit report?

In general, your credit report has four components:

• Identifying information, such as your name, Social Security number, current and previous addresses, telephone number, birth date, and employer. This information helps ensure that your credit report is accurate and doesn't mistakenly include details about another person (perhaps someone with the same name).
• Public record information, generally gathered from local courthouses, including bankruptcy records, foreclosures, tax liens, court-ordered payments, and late child-support payments. This information is used to determine if you have previous defaults or legal judgments against you. For example, a mortgage lender will want to know if you've had a past foreclosure before granting a home loan. Derogatory information can generally remain on your credit report for up to seven years, except for bankruptcy information, which may be reported for 10 years.
• Other credit history information, such as a list of your credit cards and loans, and whether payments were on time. Here, too, negative information about your credit relationships, such as late payments or defaults, will remain on your report for up to seven years, and bankruptcy information may appear on your report for 10 years.
• "Inquiries," a section of your report that lists the creditors, insurance companies or other parties that have requested your credit report, usually when considering an application you submitted. Inquiries typically can remain on your credit report for two years.

How can I get a copy of my credit report?

The Three Major Credit Bureaus

First, be aware that there is no one credit report on you. Most likely, each of the three major credit bureaus that operate nationwide—Equifax, Experian and TransUnion (see "The Three Major Credit Bureaus")—has a credit report on you. And because the credit bureaus can have different information and findings, many experts advise you to obtain your report from each of the three major credit bureaus. (There also are many smaller or regional credit bureaus that may have a report on you, but the big three are the most commonly known and used companies.)

Update: New Law to Make It Easier to Obtain and Correct Your Credit Reports In an important development, Congress in November 2003 passed a new law that can help you ensure the accuracy of your credit information and monitor your credit files for signs you may be a victim of identity theft. The law will enable you to obtain a free copy of your credit report once a year from each of the three major credit bureaus; this provision will take effect over a period of nine months, beginning December 1, 2004, in western states and moving east with completion scheduled for September 1, 2005. Nationwide as of December 1, 2004, you’ll have the right to learn your credit scores, which are designed to help predict how likely you are to repay a loan or make payments on time. As of that same date, merchants also must notify you if they plan to report negative information about you to a credit bureau. The Federal Trade Commission (www.ftc.gov) and the Federal Reserve Board (www.federalreserve.gov) have issued rules to put the new law into effect.

To get copies of your reports, contact the credit bureaus listed above. Costs can vary, but under the latest Federal Trade Commission (FTC) rules the most you can be charged is $9. And in certain situations, your credit report is free. For example, some states require credit bureaus to periodically provide free reports. The FCRA allows you to obtain free copies of your credit reports if you suspect that you are the victim of fraud (such as identity theft), if you receive welfare assistance or are unemployed. The same law also entitles you to a free copy of a credit report if you were recently denied a loan or other benefit based on that report.

"The law works on your behalf by requiring the lender to tell you the reason for the denial, the name of the credit bureau, and the fact that you are entitled to a free copy of the report on you," explains Lafleur. "You can then determine if any credit report information is wrong, and if it is, you can immediately begin the process of correcting it." He adds that, under the FCRA, if an employer intends to deny a job application or terminate employment based on information in your credit report, the employer must provide you a copy of the report before finalizing that decision.

How often should I get my credit report?

Many financial advisors suggest that you review your credit report for inaccuracies or omissions about once a year. It's especially important to review your credit report before making a major purchase, such as a home or a car, so you can correct an error before it slows down your credit approval or prevents you from getting the best possible loan terms.

What kinds of problems could I encounter?

While federal law requires lenders and other companies providing information to credit bureaus to give accurate information, mistakes do happen. So, when you look at your report:

• Make sure it accurately reflects how you have paid your bills. If you always pay your credit card and other loans on time, but your credit report erroneously shows late payments, you'll want to correct that.
• Verify that all the accounts listed are yours, especially if you have a common name or you share a name with a relative (such as John Doe, Jr.). You also want to be careful that an identity thief hasn't opened new accounts in your name to commit financial fraud. (See "Monitoring Your Credit Report to Help Guard Against ID Theft" for more tips about spotting and stopping ID theft with the aid of credit reports.)
• Look for accounts you don't use and may have forgotten. You may be able to raise your credit score by closing unnecessary credit card accounts (see the next article).