What Is A Credit Report?
If you’ve ever applied for a loan, credit card, or even to rent an apartment, you have likely had your credit report pulled and assessed.
So, exactly what is a credit report? Put simply, it is an information record prepared by a credit bureau, which displays the complete credit history of an individual.
Credit bureaus create these reports based on the relevant financial information of every individual. Credit reports are part of our everyday lives as the vast majority of us use credit regularly. Therefore it is important to explore the question: what does a credit report mean for me?
When you apply for any sort of loan or access to credit, lenders use your reports in addition to other documents to check your eligibility. Experian, Equifax, and TransUnion are the major credit bureaus in the US. The reports created by these bureaus are almost the same, barring a few exceptions.
Below we explore the credit report definition and why it is important for your creditworthiness.
Understanding Credit Reports
What’s the purpose of a credit report and why does it matter to you?
These reports contain the important personal information of an individual, such as a Social Security number, current and previous addresses, and employment history. The report also includes bank or credit card account information like credit limits, opening dates of accounts, balance history, and more.
In addition, the report contains a summary of your credit history and the number of bank or credit card accounts in good standing or past due. These reports also list out hard credit inquiries and information of accounts that you have previously tried to open.
If you have any negative information about your finances, such as missed payments, foreclosures, and even court proceedings, they will remain on your report for around seven years. With bankruptcy filings, the information will stay on the report for around 10 years.
Below we explore what information is on a credit report and what it really means.
How Credit Reports Work
Now we have defined the credit report meaning, let’s explore the different sections in it.
This report summarizes your finances and comprises four sections:
- The first part of the report contains your personal information like your name, Social Security number, and address. There could be some variations with the name or number if lenders reported incorrect information.
- The second part is the longest. It includes comprehensive credit-related information known as tradelines. This section contains records of all your bank accounts, credit facilities, and loans.
- Public records like tax liens, bankruptcies, and judgments are part of the third section of a report.
In the fourth section, you will find information related to credit inquiries. It will include the names of all agencies or lenders that requested your report.
- The fourth section may be surprising to some, but it helps to explain how a report is used. When you apply for a loan, rental property, or insurance policies, the relevant agencies legally request credit bureaus to view your reports. Even your employer can access your report if you give them written permission to do so.
The agencies and employers who wish to access reports have to pay credit bureaus for the service they receive.
According to the Fair Credit Reporting Act, Experian, Equifax, and TransUnion need to supply consumers with a free report once every year. If an agency has taken any action against any consumer, it entitles them to receive a free report according to federal law.
Actions could include denial of credit, reports from debt collectors, insurance, employment, and more. As a consumer, if you are impacted, you must make a request for the report within a stipulated time of 60 days from the time they took the action against you.
You can also receive a free report if you are unemployed and plan to get a job within 60 days, are on welfare, or have been a victim of identity theft.
A credit report gives a detailed overview of your credit history. The credit bureau prepares it, and you are eligible for one free report per year from each of the three major credit bureaus in the US.
The information available in your reports determines your credit score. Whenever you apply for a loan, your score plays an important role in getting your application approved. A low credit score means that your report contains negative information whereas a higher score means that your report is strong.
A good credit score is likely to get you better terms and rates on your financing, so be wary of information contained in your credit report and always check carefully for any mistakes or errors.