Understanding The Critical Role That Your Credit Report Plays

Many people don’t realize what a vital role that a credit report plays in our lives. Whether you are cognizant of it or not, your credit report not only dictates whether or not you qualify for a mortgage or auto loan, but how much interest you will be charged as well.

Because your credit report plays such a significant role in your life, it is important to understand exactly what it is… and what it isn’t. Understanding what comprises your credit report will give you an excellent foundation in which to manage your credit record.

What Your Credit Report Is:

Simply stated, a credit report is a summary of your credit history, It can be the summary of the credit history of an individual, corporation or government entity. For this article we will only discuss credit reporting as it pertains to the individual.

There are three credit reporting bureaus that are responsible for collecting and maintaining credit information. The three bureaus are, in no particular order, Experian, TransUnion and Equifax. Your credit information is obtained through them. Here’s how it works:

If you apply for a mortgage the lending institution will order your credit report to check your credit-worthiness. Based on this information, not only will your mortgage application either be approved or denied, but the interest rates that you qualify for will also be determined.

That is but one example of how your credit report is used. Every time you apply for a credit card, an auto loan, property rental, a new job, insurance coverage, you name it and your credit report will be ordered to determine your credit risk.

In the case of employment, many respective employers will want to look at your credit history to try and determine the depth of your character. Whether you believe that to be a fair barometer of who you are is completely irrelevant.

What Your Credit Report Contains:

It is important to note that while TransUnion, Experian and Equifax all maintain files on your credit activity, they do not share information with each other. While the majority of information collected by each bureau is similar, there can be and often times are discrepancies.

It is important to check all three credit reporting bureaus because you never know which may have inaccurate information that will negatively affect your credit rating. The information that is collected by all three bureaus includes:

• Personal Information – Your personal information consists of your name, date of birth, social security number, addresses resided at, and all past and current employers. This is compiled by gathering information you have supplied on previous credit applications and by checking public domain information.
• Credit History – This is an obvious one and constitutes the bulk of your credit report. It includes all credit accounts in your name, in addition to any joint accounts you may have had (co-signer of a loan). This information is obtained from creditors and includes detailed information such as the date loans were taken, the amount taken, and your payment history. Inactive and closed account information is also listed in your credit report.
• Public Records – This includes all information that can be obtained through government agencies. This information can include such things as bankruptcies, liens, delinquent student loans and overdue child support payments.

• Credit Inquiries – A credit inquiry is done by a third party to obtain credit information about you. The report is purchased from one of the credit bureaus that then records the inquiry on your credit report. Too many inquiries can raise a red flag with creditors and actually hurt your credit rating.

What Your Credit Report Does NOT Contain:

You will not find information regarding your gender, ethnicity, medical history, criminal background, religious and political affiliations, or marital status.

Many people are concerned about how bankruptcies will affect their credit. They will quite obviously prevent you from obtaining credit from most lenders. But on the bright side, bankruptcies are removed from your credit report after 10 years. Inactive and closed accounts are removed from your credit report anywhere from 7 to 11 years.

Believe it or not, but another piece of financial information that you won’t find on your credit report is your actual credit score, even though your credit score is directly derived from your credit report. A credit score is a mathematically derived formula that succinctly summarizes your credit report.