Think of your credit report as a snapshot of your credit activity and financial history. It holds a record of your credit limits, current and past loan amounts, and payment history. The information in your credit report can impact your long-term financial welfare especially in terms of getting a loan or mortgage.

Understanding how to read and monitor your credit report is an important aspect of financial responsibility. It will empower you to make smart decisions and handle your finances better.

What Information Does A Credit Report Contain?

The information contained in your credit report divides into two categories – your personal information and your financial information. Personal information includes your name, birth date, Social Security number, current and past addresses, contact details, and current and past employers,

Financial information includes a list of your credit cards and loans with details of creditor names, balances, payment history and account status. Bankruptcies and recent inquires will also be included in your credit report.

How They Compile Credit Reports

Credit reports are compiled and maintained by credit bureaus. There are three major credit bureaus in the US – Experian, Equifax, and TransUnion. They are also known as credit reporting agencies.

All creditors that you have a line of credit with send your debt details to one or all three credit bureaus. Credit bureaus also collect information, particularly bankruptcy details, from public records. All of this information gets updated on your credit report.

Utility companies don’t usually send your payment details to the credit bureaus. However, they may notify the bureaus if you become seriously delinquent on your payments. Your long-outstanding payments may be reflected on your report. #

What Your Credit Report May Be Used For

That’s really the biggest question of all – who would want to take a look at your credit report and why?

The truth is, over the years, several different entities will check your credit report. This includes prospective lenders, landlords, and employers. They do this to establish your creditworthiness and make informed decisions about you.

Lenders review your report to determine if you are financially responsible and will pay their money back on time. Landlords take a look at it to decide whether or not to rent to you. They are hesitant to rent to someone who has a history of missed payments. Some employers may take a look at your credit report as part of the application process. Too many negative remarks on your credit report may serve as red flags. Employees who are struggling financially are more likely to resort to dubious practices in an attempt to make some side money quickly.

The better your credit report, the higher your credit score. A high score will make it easier for you to get approved for a loan, credit card and rent. It will also make it easier to get hired.

Difference Between Credit Report And Credit Score

Although both credit report and credit score are related, they refer to two different things.

Your credit report just reflects the information provided by the different credit entities you do business with. This is information provided mainly by lenders and credit card companies.

Your credit score is represented by a number, which is calculated using the information in your credit report. Credit scores use a range number between 300 and 850. It’s normal to have more than one credit score. This is because each credit agency uses a different credit scoring model.

How And Why You Should Check Your Credit Report

According to the FACT Act, every person is eligible to receive one free annual credit report copy from each of the three credit agencies. It is important to take some time and review your credit reports for several reasons.

Firstly, there’s the possibility of wrong information in the report. This can damage your credit score. You won’t know about any errors unless you go through your credit report in detail. If you do spot any inaccuracies, you can raise a dispute and ask for it to be corrected so your score gets corrected too. This can make a big difference if you are applying for a loan or credit card.

Secondly, checking your credit report allows you to monitor your financial activity. You can see what’s pulling your score down and work on that particular area to improve your credit score.

Thirdly, reviewing your credit report can help you detect if you’ve become a victim of identity theft or fraud. When your information is used to open a new line of credit, it will get recorded in your credit report. If you did not open that new credit account, you can report the suspicious activity and take steps to protect yourself. The earlier you spot any fraudulent activity on your credit report, the faster you can take appropriate corrective action to mitigate the damage.

Things To Look For When Reviewing Your Credit Report

When reviewing your credit report make sure that all your personal information is correct and updated. This includes your contact details, residential address, Social Security number and employment information.

Check that all the credit and debt entries are correct. If you have any hard credit pulls on the report, make sure that they were done with your permission. It is illegal for creditors to do a hard credit check without your permission.

Lastly, make sure that all negative reports from more than 7 years ago are removed from the report.

If you spot any incorrect, outdated or fraudulent entry or illegal credit checks, make a note of it and file a dispute with that credit bureau. You can also raise a dispute if you think there is some information that is missing. These errors can hurt your credit report for no fault of yours.