Thinking about applying for a credit card? Credit card issuers will inspect your credit report before approving or denying you. What about a loan, an insurance plan, a mortgage, or buying a car? Your credit report will be looked at in those instances, too. Before you take any such financial leap, it’s crucial that you understand what a credit report is, what’s in it, and how it affects the way lenders perceive you. Read on to get the gist on this all-important document.
What is a Credit Report?
A credit report is a summary that encompasses the majority of your credit history. It is essentially a report card that grades how you’ve performed in certain financial aspects, the primary of which is borrowing money. Much of the information in your credit report is supplied by creditors and lenders, and potential lenders will use these details as a point of reference when considering you for a loan or line of credit. Your credit report is prepared and sold to prospective lenders and creditors by three credit reporting agencies – or bureaus, as they’re also known. They are Equifax, Experian, and TransUnion. If your credit history is poor or not extensive, your credit report won’t look favorable to lenders, and thus they’ll assume that you pose a higher risk of being lent money to. Even if your credit background is lengthy, it won’t do you any favors if it’s filled with late payments, defaults on loans, and other general acts of financial delinquency.
Credit Report vs Credit Score
Your credit report is one all-important aspect of your financial wellbeing that future lenders consider. The other is your credit score, another piece of information that you should become familiar with. If you liken a credit report to a school transcript, think of a credit score as the equivalent of a grade point average. Credit bureaus don’t calculate your credit score, but the number is derived from the data found in your report. Lenders will see your credit score as a snapshot of where you stand financially, but they’ll likely dive deep down into your full report to review all facets of your history.
What You’ll Find in Your Credit Report
- Personal information – This includes your full name and any variations thereof, your current and previous addresses, your social security number, phone numbers, and potentially your employer information.
- Credit accounts – This is the meat and potatoes of your credit report. You will find current and past accounts in which you have been extended credit or a loan take up the majority of the document. These accounts are also known as trade lines, and they include installment loans, mortgages, and credit cards. For each account, whether open or closed, you will see opening dates, credit limits and loan totals, remaining balances, payment histories, and information about the lender.
- Inquiry information – Entities that have accessed your credit report in the past will be listed. Your report includes both “hard” and “soft” inquiries, as well as the purpose of each inquiry.
- Bankruptcies, collection information, public record – All current and past proceedings involving you that have gone through the court system (tax liens, repossessions, foreclosures, and civil lawsuits) make their way to your credit report.
What You Won’t Find in Your Credit Report
Other financial information, such as details about your income, bank accounts, investments, and retirement funds are not included in your credit report. Reporting agencies also do not include information like your race and ethnicity, religious and political affiliations, or medical history.
Viewing Your Credit Report
Although the most common parties viewing your credit report are lenders and creditors with whom you’ve submitted an application, you are also entitled to look through your report. Federal law grants you the right to request one free credit report per year from each of the three major reporting bureaus. Whether you’re preparing to apply for a car or mortgage, or whether you simply want to know where you stand in the eyes of lenders, it’s a good idea to take advantage of your legal right to request a free credit report. Note that each bureau’s credit report will vary slightly. This is because current and past lenders may not report their information to all three bureaus, or they may not report the same information to all three. For this reason, it’s a wise move to request a report from all three agencies so you can get an aggregate idea of what your credit history looks like.
Ways to Improve Your Credit Report
The most obvious method of making your credit report look more appealing is by keeping all your existing accounts paid and/or closed. Doing so will show lenders that you are capable of paying back what you borrow, especially in a timely fashion. Even if you have outstanding balances, ensuring that all your monthly payments are on time will go a long way. After all, your payment history is the most important factor when calculating your credit score, which is also a crucial figure that lenders consider. Most negative items in your report – bankruptcies, foreclosures, credit accounts that have gone into collection, hard inquiries, etc. – can remain present for years, with the harshest smudges appearing for up to a decade. For this reason, it’s crucial that you generally remain responsible for all aspects of your financial life. It is possible for unsightly information to be removed after a shorter duration when coupled with sensible habits, so even the direst cases have hope.
Disputing Errors in Your Credit Report
Everyone makes mistakes, and thus it’s not rare to see inaccurate information filed in your credit report. If you find an error in your credit report, it’s crucial that you contact the bureau from which you obtained the report and dispute the incorrect details. It’s also smart to reach out to the lender/creditor that reported the error (the furnisher) so that all parties are aware. You can contest errors online or via mail. Make sure you have supporting documentation so you can make your case, and the entire process, more expedient. Credit bureaus will have typically 30 days to investigate and respond to your dispute. If the investigation does conclude in an inaccuracy having been reported, the bureau will notify you regarding the findings along with information about the furnisher that submitted the wrong data. The possibility of incorrect information ending up in your credit report is one of the reasons why you should request your eligible free reports from the three credit bureaus each year. Doing so will allow you to stay on top of what’s included in your credit report and able to quickly respond to any irregularities.