A credit report is a record of your debt management and repayment history. It functions as a form of report card that lenders and other businesses use when selecting whether or not to do business with you.
A historical record of how and when you pay your payments, how much debt you have, and how long you have been managing credit accounts is included in your credit report.
Lenders and other businesses may use your credit report to learn more about your prior borrowing history, which helps them make credit-granting choices. Credit reports are also used to compute credit scores, verify your identification, and for other uses that are governed by federal law.
What Is a Credit Report and How Do You Interpret It?
A credit report is a legible representation of the information kept in one of the three major credit agencies’ computerised credit files ( TransUnion, or Equifax). The information in your credit file is generally the same at each bureau, but each organises the data differently and displays it differently in its credit report.
The following components comprise your report:
This includes the following:
- Your entire name, as well as any variants you may have used while applying for or using credit (with or without a middle name or initial, nicknames, or surnames used prior to marriage or divorce, for instance).
- Your current address and any additional addresses you’ve supplied when applying for credit
- Current and previous employers’ names
- The names of any people you’ve applied for credit with in the past.
This section includes:
- All of your open loans and credit card accounts will be listed, as well as up to seven years of monthly payment records for each, noting whether payments were paid on time or late. When it comes to late payments, your “CR” will show whether they were 30 days, 60 days, or 90 days late.
- Closed accounts, such as paid-off loans and credit card accounts closed by you or the card issuer, remain on your credit report for 10 years and reflect up to seven years of payment history.
- Accounts turned over to collections, property foreclosures, and repossessions of automobiles or other products due to nonpayment will all be reported in this area of a credit report if appropriate.
Companies’ requests for your “CR” or credit score are tracked in this portion of your credit report, and they can stay on your credit report for up to two years. Experian reports divide enquiries into two categories:
- Hard inquiries are requests to examine your credit that are related to new credit applications, such as a loan or credit card.
- Soft inquiries often occur when your “CR” is searched for other purposes, such as credit prequalification or checking your personal credit. They might also be the consequence of organisations with which you already have a relationship monitoring your credit status.
If you file for bankruptcy, the information about the filing and its status (open, closed, etc.) will appear in this area of your “CR” for seven or ten years, depending on the kind of bankruptcy. Your Experian credit report may not contain a “Public Records” section if there is no relevant information to provide.
How Is a Credit Report Generated?
Based on the information provided by lenders and other businesses, national credit bureaus maintain credit records for millions of people. Each file contains information about a person’s borrowing and monthly payment history. Your credit file also contains information such as your current name and any other names you may have used in the past, current and previous residences, and your date of birth for identification verification reasons.
A credit file is a live, breathing record that is regularly updated with the most recent information submitted to the bureaus by your lenders and other institutions. When a firm, such as a lender, insurance provider, or potential employer, requests a credit check, the bureau extracts the contents of your credit file that are relevant and legally required to be disclosed to the company and organises them in a document known as a credit report.
Your “CR” does not contain all of the information in your credit file—for example, credit bureaus have your entire payment history on file but are normally only permitted to disclose records for the previous seven years. Your credit report cannot be given to just anyone; there are strict limits on the types of companies that can check your credit and when they can do so.
Companies who provide information to the bureaus are not compelled by law to do so, but most do report on the status of accounts to one or all three credit bureaus on a monthly basis. Experian manages credit records for more than 220 million Americans.
What Is the Importance of Your Credit Report?
The information in your credit report is the raw material used to generate credit scores, which are significant figures that can have a significant financial influence on your life.
If your credit report reveals a long history of on-time payments, it may indicate that you have a higher credit rating, which may allow you to obtain credit cards and loans with better terms. Late payments, bankruptcy, and other similar blemishes on your credit report, on the other hand, can reduce your credit score and make it more difficult to get accepted for credit cards and loans or cause a lender to charge a higher interest rate.
A credit report might also identify improper credit activity related to identity theft. Credit inquiries, as well as new loans or credit accounts that you are unaware of, might be indicators of fraudulent activity. Regularly reviewing your credit reports will help you spot questionable activity and address it faster.
When Is It Time to Get a Credit Report?
Checking your credit reports two to three months before filing a large credit application, such as for a house mortgage or vehicle loan, is a smart idea. Examine your reports carefully to ensure that you identify all mentioned accounts and that the balance and payment information corresponds to your financial records. If you feel something on your credit report is incorrect, you can submit a dispute to have it corrected.
It’s also a good idea to check your “CR” from each credit reporting agency at least once a year. Making a connection between “CR” checks and another occasion in your life, such as the New Year’s holiday or your birthday, might help you remember.
You are also entitled to extra free credit reports under the federal Fair Credit Reporting Act if you are denied credit, employment, or insurance based on your credit information. To take advantage of this, contact the firm that refused you service and ask for the name and contact information of the credit bureau from whom your information was collected. To acquire your free credit report, contact that bureau within 60 days using the information given.
What Should You Look for in a Credit Report?
When reviewing your credit report, you should do the following:
- Make sure that you are familiar with all of the accounts listed on your report. If not, contact the lender mentioned for that account to find out what is going on and to rule out the likelihood of identity theft.
- Check that the account status information for your accounts is correct. If it is not, contact the lender to inquire about the disparity before filing a dispute.
- Examine each revolving credit account’s credit usage ratio. Divide the reported balance for each by the credit limit, then multiply by 100 to get a percentage. You may also compute an overall usage ratio by dividing the total of your debt by the total of your credit limits. Remember to maintain your utilisation ratio on individual accounts and altogether below 30%.
How Credit Report Information Affects Your Credit Scores
Apart from your personal information, everything on your credit reports has the ability to affect your credit scores, with payment history and credit usage being the two most critical elements.
Lenders want to see a healthy variety of well-managed accounts, such as credit cards, an auto loan, and a mortgage, so a solid credit mix may also improve your credit score.
Your credit report may help you comprehend information that influences your credit scores and can serve as the foundation for a credit-improvement strategy.