What Is a Credit Report?

Credit reports — they’re a hot topic lately. Between the nightly news reports and the constant commercials, the talk is almost non-stop. But what is a credit report? And why do they matter? Great questions. We’re here to shed a little light on the subject, and talk about why you should pay close attention to yours.

Your credit report has information about your credit history, activity and rating. As soon as you apply for your first credit card, get a loan or sometimes even when you open a bank account, a credit report is started and a score is calculated. Credit reports also show where you live, work and whether you’ve been sued, arrested or filed for bankruptcy.

The goal of a credit report is to help lenders decide whether or not you’re a good credit risk. It might even be viewed by prospective employers, insurers and landlords.

There are people who don’t have credit reports or credit scores. For instance, if you’re a new high school graduate, you probably don’t have a credit score yet and this can be a stumbling block if you’re trying to apply for your first loan or credit card. But once you learn how to build credit and establish a credit history, it gets easier.

Whether you already have a credit score or you’re looking to establish one, it’s a great idea to learn more about what is on a report.

What Are the Credit Reporting Agencies?

The three major credit reporting agencies are Experian, TransUnion and Equifax. You’ll have a credit report and a score with each of these agencies. Don’t be surprised if there is a little variation between the reports. Sometimes your credit information isn’t shared with all three agencies at the same time or one may discover something that the others miss. There’s no reason to be alarmed if your three credit scores are not the same, as long as they’re in the same range.

Another difference you may see is the way the credit agency records, displays or stores your data. Again, this is just a slight difference and shouldn’t cause any issues in your overall credit profile.

What Information is on a Credit Report?

We mentioned that some of your basic, identifying information will be found on your report like your name, social security number, employer and your address but it’s the financial record that’s really important because it’s what’s used to determine your credit score. The following credit information can be found on your report and it’s what’s used for scoring.

Payment history. Your credit report will look at your payment habits. They’ll want to know if you pay your cards on time, in full, or if you’re habitually late and making the minimum payments.

Balances outstanding. Here they’ll be looking at how many loans and credit cards you have and how much you carry on the balance.

Length of your credit history. Your credit history began from the first time you opened a credit card. The credit reporting agencies will look at how long you’ve had a credit line and use that to help calculate your credit score.

Applications for new credit. Whether you’re applying for a loan, a big credit card, or a store card — this information is all reported to the credit bureaus.

Types of credit accounts. Big loans for cars and mortgages hold more weight than small store cards with little credit lines. This information is taken into consideration.

Public records. Any liens, bankruptcies, foreclosures, civil suits or legal judgements will appear on your credit report. In states that report overdue child support, you’ll also see that information on your report.

While each credit agency reports just a little differently, most of the above information is on every credit report.

Why Does My Credit Score Matter?

We briefly mentioned that your credit score is used by lenders to decide if you’re a good risk for a loan or a line of credit. But, did you know your credit score could impact your interest rate? It’s true. A better credit score could lead to a better rate on home and car loans.

It’s pretty easy to see why your history with credit and money can play a factor in getting a loan, but it may go deeper than that. Employers and landlords can check credit reports. These people are also using your history with money as a tool to help them decide if you’d be a good bet as an employee with their company or as a renter.

How Do I Find Out What My Credit Score is?

You are entitled to a free credit report from each of the reporting agencies once every 12 months. You can request them all at once to see if they match up, or you can spread it out over the year to space out your checks. To get your report you’ll need to contact each of the agencies separately and request it.

You can also sign up with a company, like freecreditreport.com, that offers free reporting whenever you want it. Be careful, there are agencies out there that charge you for your credit report and there’s no reason to pay when it’s offered for free.

If you’re applying for a mortgage or a car loan, your lender may give you a copy of your credit reports. If they pull one and don’t automatically give it to you, ask if they will. This way you can check them and see exactly what they’re basing their loan determination on.

How Can I Improve My Credit Score?

Now that you know how important your credit score is, you’re probably wondering how you can improve it. First of all, you absolutely can improve your credit score. Secondly, don’t expect a huge change immediately, it takes time and effort. But you can do it! Here are some tips to help you improve your credit score.

Pay on time. It’s time to get diligent about your payments and make sure they’re always on time.

Pay down debt. Do your best to cut back on your spending so you can pay down your debt.

Low debt to credit ratio. You want to keep your debt to credit ratio low, which means if your credit card has a limit of $10,000 you want to use the smallest amount possible. If you used the whole $10,000 then you’d have an extremely high debt to credit ratio.

Don’t apply for more cards. While you may need to apply for a credit card here and there, hold off from getting every store card you’re offered. Applying for too many credit cards too quickly can adversely affect your rating.

The general idea here is to prove that you can easily handle the credit you have and to establish a history of on-time payments and responsible credit use.

How Do I Fix an Error on my Credit Report?

If you’re scanning your credit report and find an error — and they do happen— you’ll want to fix it. This takes a little paperwork because you need to prove that it’s an error and the steps you’ve taken to correct it. Collect your supporting evidence and send it with a letter or an email that clearly states what the error is and what the correct information should be. If the error is with a particular credit card or bank, you’ll want to send this information to them and to the credit reporting agency. The key is disputing the errors in writing and keeping a paper trail. Keep a copy of this letter and all of your documentation.

If the errors are not corrected, you can file a complaint with the Consumer Financial Protection Bureau.

Having a healthy credit rating is becoming more and more important. So staying on top of what your score is and your credit report is a great start to protecting what matters most to you. Monitoring your credit report regularly also puts you on top of potential identity theft threats. If you’re concerned about identity theft, connect with your American Family Insurance agent and they will help you add identity theft protection to your homeowners coverage.

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