Understanding how a credit report works


In an age where good credit is required for just about everything, consumers are beginning to realize the importance of knowing what constitutes good credit. Unfortunately, many are still confused when it comes to understanding their credit report and many are unsure of the differences between credit reports and credit scores. Understanding the differences between the two is crucial in improving credit. Both the credit report and credit scores offer a lot of information about a consumer’s financial history and can impact your future.

Credit Scores Versus Credit Reports

A credit score is a number that ranges from 300 to 850 which shows potential lenders a bit about your financial history. These numbers may vary from reporting agency to reporting agency and the higher the score, the more financially secure you are. A credit report is simply a list that gives a detailed record of your financial history. Your credit report includes lender history as well as payment history, account totals and the frequency in which you made payments. If you have missed a payment or were late on a payment to creditors, this is included in your credit report. Your credit score takes this information into account and delivers a number that lets lenders know whether or not you can be considered financially responsible. For instance, if you have a habit of missing payments, your credit score may be low, which would deter potential lenders as they would consider you a high payment risk.

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What Credit Reports Include:

Aside from your name, and any other names that you have gone by in the past 10 years, your credit report will include a detailed list of all of your past creditors; if those creditors report to the credit bureaus. This could include any company that have given you a loan such as credit card companies and mortgage lenders. Your report will also include the total amount of the loan that you were granted or the credit limit for credit cards that you have had. Credit reports also include how often you paid on a particular loan and the amount that was paid, as well as any missed or late payments throughout the life of the loan. Personal addresses, past employers, and public records such as judgments or bankruptcies are also included.

Who Sees Your Credit Report?

Your credit report may be viewed by any creditor, mortgage lender or financial institution when you apply for a loan or a line of credit. If you are attempting to rent a house, a landlord may also take a look at your credit report to see if you are considered reliable with regards to paying your rent. Student loan companies, utility companies and insurance agencies may also look at your report to determine rates that you may be charged for interest, insurance or deposits. Others who can view this report include employers, collection agencies, judgment creditors and government agencies.

How Does Your Credit Report Affect You?

Your credit report can impact how you borrow or even if you can borrow. If you have a low credit score and a credit report that is filled with late payments and other negative marks, you may find it difficult to purchase a house. Your credit can impact the rate that you may pay on a mortgage loan as well as job applications, credit card and auto loan approvals and housing rentals. Because of this, it is imperative that you learn what is on your credit report and work to rid your report of any negative marks or accounts.

Improving Your Credit Score:

You can improve your credit score. If you have a history of late payments and other derogatory remarks on your report, you can begin by making your payments on time. It takes time to raise your credit score just as it takes time to lower it, but it can be done. Planning for your financial future is imperative if you plan to purchase a house or make other financial decisions. With just a bit of planning, you can remove negative remarks and raise your credit score as well as clean up your report to make yourself look more favorable to creditors in the future.

Checking Your Report Regularly:

It is important that you regularly check your credit report to ensure that all of the information included there are valid. You can use a number of free credit check services online to get a look at your credit report and some of these offer a credit score as well. Financial experts recommend that you take a look at your report at least once every four months to ensure that there is no incorrect information included. Doing so can help you to catch any inaccuracies that may be in your report and this helps you to notice the first signs of identity theft. If you have fallen victim to identity theft, you should report this to the credit reporting bureaus right away. Studies show that about one out of four consumers show at least one inaccurate report or error in their credit reports. These errors could cause you to have a lower score and can impact your ability to borrow money or rent housing. If you find that there is a discrepancy in your report, it is important to contact the reporting agency and dispute that information as quickly as possible.

Giving Yourself Financial Peace Of Mind:

Knowing the difference between your credit reports and your credit scores is the first step to financial peace of mind. You should know all of the details that are included in your credit report and always note any errors or discrepancies for dispute. Regularly checking your report will help you to identify your financial weaknesses and will give you the tools that you need to overcome these weaknesses. Paying your bills on time, keeping your debts to a minimum and keeping updated on your current credit report are the best ways to protect yourself from identity theft and to ensure that your score is at a level that is considered satisfactory to lenders.

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