Most people rely on credit at one point or another in their lifetime. Whether it's to pay for college, a new TV, or a home, credit is often the middleman between people and a purchase they cannot otherwise afford in full. However, extending credit is a risky endeavor, which is why lenders do not hand out loans before doing their research. One of their primary research materials is an applicant's credit report.
What is a credit report?
A credit report is a detailed list of all of your credit activities. Although credit reporting agencies (also known as the credit bureaus) may present it differently, nearly all of them include the following four factors:
- Identifying information
- Account details
- Credit inquiries
- Public records information
Learning the fundamentals of a credit report may help you stay on top of your finances and protect your credit score*.
The details in this part of your credit report include your name, Social Security number, date of birth, address, and employment information. This information has no bearing on your credit score.
This section lists your credit account information, including all of the accounts held in your name, when they were opened, the credit limit associated with them and their balance and payment history.
Information about any late or missed payments is also included here, as well as any fraudulent accounts that may have been open in their name. Negative information in this section could hurt your credit reports and scores.
When you apply for a loan, lenders will review your credit reports and scores to determine whether you are a responsible borrower. Each time a creditor accesses your credit reports, it is called an inquiry.
There are two types of inquiries included in your credit report: voluntary (hard) and involuntary (soft). A voluntary inquiry occurs when you request a line of credit for yourself; an involuntary inquiry is when a creditor checks your report without being prompted — such as to extend you a pre-approved credit offer.
Public Record Information
Credit reports also include information from state and county courts, as well as details regarding overdue debt from collection agencies. If you have endured a bankruptcy, tax lien or monetary judgment, you will see the respective item marked on your credit reports.
In some cases, your may find an item, such as a missed payment or bankruptcy mark, on your credit reports in error — and these items may damage your credit reports and scores. You do, however, have the right to dispute these items with a personal statement directly in your credit report explaining the circumstances behind the negative listing. This can be especially helpful if you had a foreclosure or bankruptcy that resulted for reasons beyond your control, such as large medical debt or a family emergency.
- Why should you review all three of your credit bureau reports?
- Is seeing your free annual credit report enough?