Credit Reports Explained

Your fingerprint cannot be replicated by anybody else; it exclusively belongs to you. Your credit report is very similar your fingerprint because it is also distinctly yours. Just like your fingerprint can provide a wealth of information about you, your credit report can as well. Your credit report is created the minute you begin your credit life, and all of your credit conduct and credit activity, will be recorded in this report until the day you stop using credit.

Your Credit Report

There are four significant parts to your credit report: 1) your identity information, such as your date of birth and Social Security number; your past and present addresses; and your past and present employers; 2) All of your credit activity, like credit cards, loans, amount of payments, the date you created your accounts and your pattern of payments; 3) The names of any persons who have obtained your credit report, i.e. inquiries, within the past two years; 4) Any public record information, like default judgments or a bankruptcy.

Function

Credit reports are created by a consumer reporting agency (CRA). The CRA will gather information from anyone you have had a financial relationships with and store the information in a database. CRA's are more commonly referred to as credit bureaus, and there are three major credit bureaus that are used often by lenders and merchants: Equifax, Experian, TransUnion. Credit bureaus charge a fee to supply information; however, a consumer can check his credit report annually for free. According to the Federal Trade Commission, the three major credit bureaus have a central website available where you can order your free credit report. See Resources for the direct link.

Effects

The information in your credit report is obtained from any creditor you currently have or have had an account with. For example, if you opened your first credit card when you were 18, that is when your credit report began, and any information concerning that account can be found in your credit report, even if you have since closed the account. Based on how you handled your debt, such as making timely payments or not exceeding your credit limit, you will be assigned a credit rating that determines if you are a low-financial risk or a high-financial risk.

Considerations

Your credit rating is determined by a three-digit number more commonly called your credit score. This three digit number can range from 300 to 850 and it will greatly influence a potential creditors' decision when you apply for a loan. The higher your credit score, the lower your credit risk. The secret to a higher credit score is to keep your balances low and pay your bills on time, according to CNN Money.

Warning

Your credit report is not only accessed by potential lenders. It can actually be accessed by employers who are considering hiring you, insurance companies, government agencies and anyone who has a legitimate reason for needing access to the information, such as a potential landlord. However, the information in your credit report may not be 100 percent accurate, so it is very important that you check your credit report at least once a year. The Fair Credit Reporting Act was created to promote accuracy on your credit report, so if you can prove that there is unwarranted negative information in your credit history, the information has to be removed.