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Credit Reporting 101
Credit Reporting Overview
Credit Reports & Scores
Credit Dispute Resolution
Credit Management Tips and Misconceptions
Analysis of a Credit Report
Jim Riley
April 5, 2006
© 2004 TransUnion LLC. All Rights Reserved.
Credit Reporting Overview
• Three main U.S. credit reporting companies, including TransUnion
• Companies update and distribute consumers’ information
• How the system works:
– Consumer applies for credit
– Creditor requests information about consumer’s financial history
– Credit profile used to determine whether to authorize credit –
and if so, at what interest rates.
– Consumer gains access to credit (or is denied)
– Credit grantor reports activities back to credit reporting
companies every 30 days
– Credit reporting companies update consumer’s information
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What is a Credit Report?
• Summary of a consumer’s financial reliability
• Prepared by credit reporting companies for use by credit
grantors and other parties with permissible purpose
• Details a consumer’s credit history as it has been reported
• Lists the type of credit a consumer uses, the length of time
the accounts have been open and whether the consumer has
paid their bills on time
• Tells lenders how much credit a consumer has used and
whether they are seeking new sources
Did You Know? With the Dec. 2003 signing of the Fair
and Accurate Credit Transactions (FACT) Act, all
consumers are entitled to one free credit report per year
from each of the three major credit reporting companies.
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Types of Credit Reports
Consumer Disclosure
(Consumer Version)
• Lists all inquiries including limited inquiries and account
reviews
• Only consumer can request this version
Subscriber Report
(Credit Grantor Version)
• Abbreviated version of consumer credit report that only
creditors see
• Does not contain limited inquiries or account reviews
• Does contain credit inquires
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Elements of a Credit Report
What is in a Credit Report?
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Identifying Information
Public Record
Credit History / Trades
Inquiries
What is NOT in a Credit Report?
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Race
Gender
Religion
Sexual Orientation
National Origin
• Medical History
• Checking or Savings Account
Balances
• Brokerage Accounts
• Driving Record
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What is a Credit Score?
• Sum calculated by vendor and used by lenders as an indicator
of how likely consumer is to repay loans
• Snapshot in time of the consumer’s current financial situation
• Generated by a mathematical formula
• Each credit grantor has its own strategy for interpreting the
credit score
• If credit is denied after reviewing the score, credit grantors must
disclose reasons for the decision
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Components of a Credit Score
What is Calculated in the Credit Score?
• Payment History
• Outstanding Debt
• Credit Account History
• Recent Inquiries
• Types of Credit Used
What is NOT Calculated?
• Demographic Information (age, race, color, religion, national
origin, sex, marital status, residence, child/family support
obligations)
• Employment Information (salary, occupation, title, employer,
date employed, employment history)
• Other Credit Information (interest rates charged by other credit
grantors, rental information, usage by the consumer of a credit
counseling company)
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TransUnion’s Scoring Model
• Uses 1.7 million records from the TransUnion database
• Up to 4 Adverse Action codes returned and rank ordered
• Scores range 150 – 934
How was the Model Developed?
• Large sampling of consumers’ credit reports accessed
• Data analyzed to determine factors that relate closest to
creditworthiness
• Degree of importance assigned to each factor based on
predictor’s accuracy
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What’s a Good Credit Score?
• Hard to say, but typically the higher the score the better
• Individual credit grantors decide range of acceptability
• For example, a consumer’s TransUnion credit score might be
680
• Based on the TransUnion model, following is a graphical
assessment of the consumer’s creditworthiness:
• Based on this score, here is how the consumer may be
viewed by a certain lender:
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Credit Dispute Resolution
• Consumers have the right to dispute inaccurate information
on their credit report
• First, correctly identify inaccurate information
• Next, contact the credit grantor responsible for the inaccuracy
and try to resolve the issue
• If this does not work, contact the credit reporting company(s)
that is/are reporting the inaccurate information
• Credit reporting company(s) will investigate the issue
• If changes are made, consumer will be contacted within 30
days.
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Credit Management Tips
Set Goals:
• Check your credit report every three months
• Improve your credit score 50 points or to above 650
• Reduce your debt balances to below 35% of available
credit limit
• Create a monthly budget and stick to it
Clean Up Your Records:
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Dispute negative inaccuracies on your credit report
Remove expired debts and collection accounts
Consider refinancing
Guard against identity theft
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Top 5 Credit Misconceptions
• Your credit score will drop if you check your credit report
• Closing old accounts will improve your credit score
• Once you pay off a negative record, it is removed from
your credit report
• Being a co-signer doesn’t make you responsible for the
account
• Paying off a debt will add 50 points to your credit score
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Credit & Young Consumers
• Young consumers often have “thin” credit profiles, which
could lower their credit score
• Important for credit grantors to consider this when making
credit granting decisions
• Helping young consumers to understand how their credit is
viewed and how it is assessed helps them optimize their
creditworthiness
• It also helps credit grantors feel confident in their credit
granting decisions
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Credit Report
A full history of information within a consumer’s
credit file, including:
identification (indicative) information
current and historical account performance
collection activity
public record activity
records of other companies who have viewed that
credit file.
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Credit Report Sections
Standard information in a Credit Report includes:
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Indicative Information
Special Messages
Model Profile
Credit Summary
Public Records
Collections
Trades
Inquiries
Consumer Statements
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Credit Report Codes
Equal Credit Opportunity Act (ECOA )
• Inquiry and account designation on an account
Manner of Payment (MOP)
• A series of codes used to show the payment
habits (prompt, delinquent, etc.) of a subject.
Kind of Business (KOB)
• Business classification
Date Indicators
Type of Account
• A code that indicates one of five general types of
credit accounts.
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Codes
Add-On Services
Addresses specific customer needs, including:
• Identity verification
• Application verification
• Fraud prevention
• Regulatory compliance
• Collections
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Indicative Information
Phone
Append
An add-on service
that appends a tendigit phone number
Includes the consumer’s name and aliases, current and up
to two previous addresses, date of birth, social security
number, telephone number, and up to two employment
records.
Rpt
Section
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Special Messages
Highlights specific credit file conditions
that may include:
• Presence of consumer statement
• No subject found
• Optional add-on products
Rpt
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Model Profile
Displays empirically-derived scores to predict a consumer’s
future credit performance.
Risk scores factors are displayed numerically or in text. Up to
four factors are disclosed and are displayed in order based
on their relative impact on the final score.
*** ALERT ***
appears when MOP is 7 or greater, a negative public
record or a collection is present on the file.
Rpt
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Codes
FICO Reason Codes
Rpt
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Credit Summary
Condenses all elements of a consumer’s credit file into
key areas of information. This snapshot helps you focus
on areas that are of concern.
Information is divided into two areas:
1. Counters of different categories of information
2. Information on each type of trade (revolving, mortgage, installment
and open) as well as closed trades with current balances.
Rpt
Section
* Available as either total file history or 12 month file history
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Codes
Public Records
Information obtained from county, state and
federal courts, including civil judgments, tax
liens, and bankruptcies.
Rpt
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Codes
Public Records
How Long?
Typical Retention Periods
Civil Judgment …………….……..……….7 years
Unpaid tax lien
…………….……………Indefinite
Paid Tax Lien
...………….……7 years from date
Chap 7, 11 or 12
Chap 13
..…………….…………10 years
Chap 13 dismissal/discharge
.……………………….…………10
years
BK voluntarily
dismissed
….………..7 years
….……………..7 years
Rpt
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(May vary by state)
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Collections
Accounts that are being processed by a third party
collection agency, defined with a Kind-of-Business
(KOB) code of “Y”.
Rpt
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Codes
Trades
Creditor
Contact
Information
An add-on service that returns contact information –
including name, address, and potentially phone
number – for all subscribers appearing on the credit
file.
This is a list of accounts held by the consumer,
along with their current and historical payment
history on the account.
1. Trades are sorted by most derogatory
followed by date verified (or vice-versa)
2. Payment pattern is available displaying either
12 or 24 months
Rpt
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Codes
Inquiries
This section displays information about other companies who
have viewed this consumer’s report within the past two years.
Information returned includes the date of inquiry and the
subscriber’s name and number.
Inquiry
Analysis
An add-on service that provides valuable
information available from inquiries made to a
consumer’s file within the last 90 days. Includes
the subscriber’s name, member code and inquiry
date, along with the input used to perform past
inquiries.
Rpt
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Codes
Consumer Statement
Section where consumers can state in their own
words descriptions of specific situations that may
affect their credit report.
Rpt
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Codes
Resources
For more information, visit the following
Web sites:
– www.TransUnion.com
– www.TrueCredit.com
– www.annualcreditreport.com
Questions
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