How Does A Credit Report Work?

A “credit report” is your personal history, including your basic personal information, public records, personal credit history and who has made recent inquiries about your credit report. When a person goes to a lender or creditor, that credit institution (bank, car finance company, credit card firm) will ask for a credit report. Credit reports are sold by one of the three credit report agencies to lenders. These credit report agencies are Experian, Equifax and TransUnion. Looking at these credit reports, a potential lender or potential creditor decides whether to loan you money or extend a line of credit to you. Also, Fair Isaac Corporation (FICO) compiles FICO reports which also effect your ability to borrow money or establish credit.

Four Major Parts Of Your Credit Report

As mentioned before, there are four major parts of your credit report. Let me list each one in its turn.

  1. Personal Information – The personal information on your credit report includes basic stuff you’ll give when applying for a credit card or job. This includes your full name, your current address and telephone number, past addresses, the date of you birth and your Social Security number. Also, the credit report lists who your former employers are and how long you were employed at that business.
  2. Public Records – These are your court records, especially trips you have made to bankruptcy court. This also lists any court cases you’ve had go against you.
  3. Credit Information – This is the heart of your credit report. “Credit information” includes the history of your credit accounts (usually for the past seven years), including home mortgages, car loans, student loans, credit card debts, store credit and any other lines of credit you’ve had. This includes reports of your monthly payments and missed payments, which accounts you paid off and any loan defaults you might have had. Finally, credit-related information includes the credit limits you have at present and other monthly bills (related to credit) you have. This helps a lender know how much potential debt you might have.
  4. Recent Credit Inquiries – Simply put, this gives the names of businesses and lenders who have bought your credit report and the dates when your credit report was given out. This list would include potential lenders, potential creditors and prospective employers.

Loans & Credit Reports

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Potential employers (who do full background checks) take a look at this report to get an idea whether you would be a trustworthy employee. Loans & credit reports work similarly by affecting your ability to get loans and credit lines. Prospective creditors and lenders take a look at your credit report to determine how likely you are to pay back your loan and how likely you are to default on this loan. The credit report agencies make it easy to guess these things by assigning a “credit score”, which is a quick assessment of your credit repayment potential. Even if you get a loan or a line of credit, this credit score or credit rating is used to determine the interest rate on your loans and credit cards.

A credit report has a huge affect on your ability to get loans of all types and to get credit cards, as well as getting a nice job. So learning how your credit report works and how you can affect your credit report will help you save money and perhaps even earn money.

First off, to improve your credit report and credit score, you need to repay your debts. Make payments on time and don’t default on credit card debts, for instance. If you have needless debt ceilings such as multiple credit cards, eliminate several of these so your potential debt isn’t nearly as high. Pay off student loans and car loans. Then check your credit report by asking for a credit report from Equifax, TransUnion and Experian. When you get this report, dispute any incorrect information. This occasionally works and your credit score will improve.

Otherwise, you might have to wait a few years for your credit report to get clear of bad credit information. Eventually, your debt problems will disappear off your credit history report. Some of this disappears in two years, while some won’t even disappear for seven years.