Your
credit score
is one of the many crucial indicators of your financial
health, which can impact your ability to obtain the credit
you need. Credit scores are created based on the data
reported by your previous creditors. The resulting
three-digit score gives potential lenders or creditors an
assessment of how likely you are to repay your debt.
The best thing about credit scores is that you can gradually
increase them by adopting healthy financial habits,
depending on your current situation. Your credit score
reflects the information in your credit report. So, it would
help if you began by understanding what credit reports are,
what they show, and why it is essential to check them.
What is a Credit Report?
A credit report is a carefully structured document prepared
by credit bureaus reflecting your
credit history
and current financial situation. Information about your debt
repayment and the status of your credit accounts are
included. Creditors, lenders, banks, and other financial
institutions report financial information to credit bureaus
to build credit reports.
In the U.S., there are three main credit bureaus. Each
credit bureau
maintains the same information in your credit file. They
each organize the data differently and format credit reports
differently. The information on all your credit reports may
also vary because not all businesses report to all three
credit reporting agencies. Irrespective of which credit
bureau builds your credit report, having an accurate and
clean credit report is essential for most facets of your
financial life.
Why is a Credit Report Important?
Your credit report's information serves as the foundation
for credit scores, ranging from 300-850, that depict your
creditworthiness. Lenders often review your credit report to
determine whether you qualify for a
loan or line of credit
and what interest rate to offer you.
A long history of on-time payments on your credit report is
a positive indicator and contributes to a higher credit
rating. Thus, you can obtain credit cards and loans on more
favorable lending terms. On the other hand, too many missed
or late payments, bankruptcy, and other similar marks can
drop your credit ratings. Lower credit ratings will make
getting approval for credit cards and loans tougher or
compel lenders to charge you a higher interest rate.
However, even with a lower credit score, it is possible to
borrow funds by seeking out lenders that offer
bad credit loans.
Your credit report is crucial because it can impact many
aspects of your life. Besides obtaining loans or credit,
your ability to rent an apartment, buy a house, purchase an
automobile, or get hired for a job may be affected.
Which are the Three Credit Reporting Agencies?
Equifax,
Experian, and
TransUnion
are the three major credit reporting agencies in the United
States. Each reporting agency compiles data based on
financial behavior to produce a unique credit report.
These credit bureaus gather and sell data about your credit
behavior. However, companies who
check your credit, including lenders and credit card companies, must have a
legit cause to do so, like screening loan applications. Most
of the time, they need your consent.
How to Get a Credit Report?
It is wise to monitor the information on your credit report
since lenders can use it to assess your creditworthiness.
There are numerous paid sources to get an up-to-date copy of
your credit report. You can also qualify for a free credit
report annually under the federal Fair Credit Reporting Act.
Visit
AnnualCreditReport.com
to get a free credit report from the three main credit
bureaus. You can also call to obtain a free credit report by
calling 1-877-322-8228 or download a form online and send it
to the Annual Credit Report Request Service, P.O. Box
105281, Atlanta, GA 30348-5281, to request a report.
Be aware that the waiting period to receive a credit report
can range from a few minutes to fifteen days, depending on
how you make your request. The internet request form is the
quickest way to access your credit report. If you request it
by phone, you may receive your report within 15 days; if you
request it by mail, it usually takes about 15 days after
each bureau receives your request.
What Information & Documents are Required to Get a
Credit Report?
Here's a list of the essential information you need to send
any one, two, or all three major bureaus to get your credit
report:
- Your name
- Current address
-
If you've lived at your current residence for less than
two years, your previous address.
- Social Security number
- Date of birth
Credit reporting companies may ask you for several pieces of
information to authenticate your identity. Your monthly
mortgage payment or credit card limits are often requested.
Overall, receiving a copy of your credit report has become
significantly less complicated over the last decade.
What Does a Credit Report Show?
All credit reports contain essentially the same types of
information, even if Experian, Equifax, and TransUnion
display your data differently. Here are the four common
categories of information:
Personal Information
A list of details that identify you is included in the
personal information section of your credit report. Your
name, current and previous addresses, social security
number, date of birth, spouse or co-applicant information,
and phone numbers are all listed at the top of the report.
This information is updated based on the data you give
lenders when you apply for new credit.
Credit Accounts
This section makes up the majority of most reports. It
contains complete details on all your credit accounts,
including
installment loans, auto loans, personal loans, and mortgages, as well as
revolving credit like credit cards and lines of credit. Each
reported account will be classified as Open, Closed, or
Negative. The details about all missed payments,
charge-offs, or collections actions, are also included.
Credit Inquiries
This section of your credit report keeps account of the
inquiries made by businesses seeking your credit report or
credit score. Your requests for credit can prompt hard or
soft inquiries. Be aware that when you apply for pre-approved credit, if
there is a hard credit check, These inquiries can stay on
your credit report for up to two years.
Public Record And Collections
Public records about financial activities, such as
judgments, tax liens, and bankruptcies, are included in this
section. If you file for bankruptcy, you'll find the
specifics of your bankruptcy filing and its status listed in
this credit report section. Depending on the
type of bankruptcy
you apply for, the information will appear and stay on your
credit report for seven or ten years.
It is essential to regularly check the information on your
credit report to ensure that your lenders see the most
accurate credit scores when you apply for credit. You must
notify the relevant credit bureau if you discover a mistake
on your record.
How Often Should You Check Your Credit Report?
According to experts, you should check your credit report
and score at least once every year. The information on the
credit reports of all three major credit reporting agencies
can vary, sometimes by more than you would expect. You
should review all three to gain a thorough picture of your
creditworthiness.
Apart from the regular annual credit checkup, you should
review your credit report before making significant
financial decisions. An added benefit to consistently
checking in on your credit reports is that you will gain
insights into potential fraud or identity theft.
You might want to set up fraud alerts or a credit freeze if
you detect any signs of identity theft causing errors on
your credit report. You should contact one of the three main
credit bureaus to set up alerts. When you report a fraud
alert to one credit bureau, that bureau will contact the
other two bureaus on your behalf. Freezing your credit won't
damage your score, and you may unfreeze it whenever you need
to apply for any
loan or credit card.
Who Looks at Your Credit Report and Why?
Some lenders use these reports to make well-informed
decisions about whether or not to lend you money and what
interest rates to charge you. In some cases, your credit
report is also used by lenders to assess whether you will
continue to adhere to the terms of an existing credit
account.
Besides banks and other financial institutions, your credit
report is crucial for numerous businesses to make decisions
about you. Prospective landlords can examine your credit
report before they decide whether to rent to you. Some
organizations even perform credit checks on applicants as
part of their hiring process.
Does Requesting a Credit Report Hurt Your Score?
No, checking your credit reports or scores does not affect
your credit ratings. Regular checkups are crucial in
ensuring the accuracy of your personal and account
information and can assist in identifying possible identity
theft. Requesting for your credit report is a perfect
example of a soft inquiry. Your credit scores are unaffected
by soft credit checks, which are only visible to you when
you check your credit report under the credit inquiries
section.
Difference Between Credit Report and Credit Score
A credit score is a single numerical rating. In contrast, a
credit report collects data about your credit activity and
current credit situation. Your credit reports significantly
influence your credit scores. That's because data from your
credit reports is used to construct credit ratings. Consider
your scores as a brief synopsis of your credit report. For
this reason, cleaning up the reports is the first step to
improving your credit score.
Just like credit scores, you have various credit reports.
Scores can also change depending on the data used to
generate them.
Conclusion
A credit report records how you have previously handled and
repaid debt. When considering whether to do business with
you, lenders and other companies use it as a form of a
report card. Therefore, reviewing your credit reports will
assist you in understanding your situation and identifying
any fraud or inaccuracies with your accounts.
Remember that it's not the end of the world if a debt
collection shows up on your credit record. While there may
not be any quick remedies for fixing your credit, there are
undoubtedly easy steps you can use to raise your credit
scores over some time.