From the moment you start using a credit card, lenders collect your credit data. They collect information that highlights your spending habits and how well you're managing the credit you've been given. Every 30 to 45 days, a credit card provider (lender) will send your data to the three major credit reporting agencies: Equifax, Experian, and TransUnion.
The information lenders send to these three agencies is what makes up your credit report, and it is used to calculate your credit score. Your report will contain mostly positive data if you manage your credit responsibly, leading to a high credit score. Bad management means negative credit data and a low score.
The following information goes into your credit data:
Personal Identification Information
Personal information that identifies you and connects you to your credit accounts is included in your data. This does not directly affect your credit rating, but mistakes here may cause some problems in the future.
The information that goes in your credit data includes your name, date of birth, social security number, past and current addresses, past and current phone numbers, past and present employers, and other similar identifying details.
Cross-check all your personal data whenever you fill out application forms for new credit. If you notice a mistake in your credit report, file a dispute immediately with the concerned credit bureau.
Credit Account Information
Your credit data also contains a list of your past and current credit accounts. Any accounts you have (or had) with banks, credit card providers, and other lenders are detailed in this section of your credit report. The accounts are grouped by loan type, and they may include mortgages, car loans, student loans, and credit cards.
If you make on-time payments consistently or skipped some payments in the past, or make late payments all the time, it will be included in your credit data. Any accounts that have been sent to collection agencies due to delinquency on your part will also be highlighted. These serve as a red flag to any lender that wants to offer you credit in the future.
Information about past accounts will remain part of your credit data for ten years if positive and for seven years if negative.
Whenever you apply for credit from lenders, they request a copy of your credit data from the bureaus. Every time such an inquiry is sent to a credit reporting agency, it is noted down. Consequently, an entire section of your credit data is reserved for credit inquiries.
There are two types of inquiries: soft and hard. Soft inquiries refer to instances when you check your credit or a potential employer or landlord requests for your credit report as part of a background check. It also applies to cases when a lender pre-approves you for a credit card and sends you an offer in the mail. Soft inquiries do not affect your credit rating, and they are only visible to you.
On the other hand, hard inquiries refer to instances when you apply for credit or a mortgage, and the lender checks your credit history to see if you are creditworthy. Too many hard inquiries within a short period are regarded as a red flag, and it causes a slight reduction in credit scores. It signals to the credit bureau and lenders that you have been applying (and getting rejected) for new credit frequently.
Luckily, hard inquiries have minimal impact, and they only affect credit scores for 12 months. However, they remain a part of your credit data for two years.
If you have negative public records that pertain to your credit history, they are included in your credit data. Examples of such documents include bankruptcies, court judgments, and tax liens. Due to a recent policy change, however, court judgments and tax liens may no longer be added to credit data, and the records may be expunged.
Bankruptcies will remain a part of credit data, though, and they have a significant negative impact on credit rating. Chapter 13 bankruptcies will remain on credit reports for seven years after they are discharged. The discharge process may take up to 5 years, but credit bureaus can only keep the record for a maximum of 10 years.
Alternatively, chapter 7 bankruptcies can be kept as part of credit data for ten years from the filing date.
Credit report disputes and fraud alerts are included in your credit data. However, they are not relevant to your credit history or credit rating. They only keep track of how many times you've made complaints or received alerts.
Alternative Credit Data: How it Works
When calculating creditworthiness, credit scoring agencies use traditional credit data like payment history, unpaid balances, and the age of credit data. However, some new data sources are being touted as an excellent alternative to the status quo. These are referred to as alternative credit data, and they provide a way to evaluate first-time borrowers that don't yet have traditional credit data.
Information considered may include balances held in checking and savings accounts, how expenses (like utility payments, rent, and cellphone payments) are handled, and how much is held in investment accounts.
New scoring models like UltraFICO, FICO Score XD, and Experian Boost have already been established to leverage alternative credit data. The expectation is that in the future, these models will be adopted extensively. People will be able to use this alternative financial information to boost their credit rating and qualify for new credit.
The Bottom Line
Since it directly impacts your credit rating, you must keep your credit data as positive as possible. Don't make late payments, default on payments, or request credit indiscriminately. Please report any suspicious activity on your account to the lender as soon as you notice it.
Every American is entitled to a free credit report every year from the three credit bureaus. Ask for a report today to gain first-hand access to your credit data. When you do, remember to check your personal information and ascertain that all your details are correct.