Ever since 2003 American consumers have enjoyed the right to obtain or “pull” a copy of their credit reports from any of the credit reporting companies once every 12 months at no cost. The process, which can be completed online at www.annualcreditreport.com, takes a couple of minutes and is fairly simple. You enter a few identification fields, answer some authentication questions and a few seconds later you’re taking a look at your free annual credit reports.
Consumers also have the option of signing up to become registered users of a variety of websites and also gain access to their credit report information. Most, if not all, of these websites will provide you with even more frequent access to free credit reports than what you’re entitled to as a consumer right. These websites, often informally referred to as “freemium” sites, include companies like CreditKarma, Nerdwallet, LendingTree, and others.
Behind the Scenes of Your Credit Reports
The credit reports disclosed to you from any of these websites are the product of a series of events that took place long before you ever thought about checking your credit reports. That’s the purpose of this month’s article for The Score; to explore the chronology of events that take place leading to your having access to your credit reports from a 3rd party website.
Step One – You Apply for and Establish Credit
You are not born with a credit report. It has to be created. And in most cases your credit report is created the first time you apply for credit. This creates what’s referred to as an inquiry-only credit report.
Assuming that first application was successful and you were approved, then you will have opened some type of credit related account, perhaps a credit card. This step is important because in order for anyone to have a meaningful credit report they need to have had some form of credit history in order to populate the report. This can include a mortgage, credit cards, student loans, or auto loans. These are the common forms of credit that appear on consumer credit reports.
The more you apply for credit and the longer you use credit the more voluminous the data on your credit reports. These reports will become the basis upon which your credit scores are calculated and lending decisions are made for the better part of your life.
Step Two – The Furnishing Process
Now that you have credit, your experience with the creditor has to make its way to the credit reporting companies. This process is referred to as data-furnishing. Your lenders are referred to as data-furnishers.
Each month your information is furnished or reported to the credit reporting companies. The more credit you have or have had, the more information is furnished to the credit reporting companies.
This information is placed in the credit file systems of the credit reporting companies and is used to compile your credit reports if and when you apply for credit or want to see a copy of your own credit reports.
Step Three – Sharing Your Credit Reports With a 3rd Party
Step three can actually split into two different directions, one direction for lenders and one for consumers.
Lenders: If a lender wants to use your credit report for underwriting or marketing, they work through their credit reporting company vendor to procure or pull your credit report. This is done through the credit inquiry process and can only occur if the lender has what’s referred to as Permissible Purpose. Permissible Purpose is a term that appears in the Fair Credit Reporting Act and defines what is a legal reason for a credit reporting company to share your report with a 3rd party.
Consumers: Because consumers have a Permissible Purpose to access their own credit reports, they can either make that request directly with any or all of the credit reporting companies, or through a 3rd party website. The website that was created by the credit reporting industry to provide consumers with their free annual credit reports is the aforementioned www.annualcreditreport.com.
If consumers want to become registered users of some of these websites they will be able to access their credit reports, and scores, via that site at no cost. Because the report that’s being provided is designed for only consumer consumption and is not being delivered to a lender, this is commonly referred to as a consumer disclosure style credit report.
The information provided to lenders and consumers is similar, but not exactly the same. The primary differences include the cosmetics of the report style and the wording and explanation of the information.
For example, credit reports used by lenders are in a format/language called Metro 2. Metro 2 is a series of alphanumeric characters. As such, it wouldn’t make sense to provide that report to a consumer because they wouldn’t be able to understand it. The reports provided to consumers are easy to read, often color-coded, and include legends to explain the information.
The sharing of the information with either a consumer or a lender is the final step in the disclosing process. This process, which can occur many times each year, is almost always free for a consumer. There is no charge for claiming your annual credit reports and the various 3rd party websites do not charge their registered users for their credit report information. As such, consumers would do well to claim their credit reports, from one or more sources, as often as they can.
The views and opinions expressed in this article are those of the author (credit expert John Ulzheimer) and not necessarily those of VantageScore.
