How Does Credit History Work?

Credit bureaus exist to collect and keep track of credit-related information about individuals. When a person receives a credit card, loan or other credit service, information about her is sent to one or more of the three major credit bureaus (Equifax, Experian, and TransUnion) so they may open a file on that individual. Any additional reports sent by creditors will be matched by the individual's Social Security or tax identification number to the history file that was previously created.

Credit Bureaus

Credit bureaus exist to collect and keep track of credit-related information about individuals. When a person receives a credit card, loan or other credit service, information about her is sent to one or more of the three major credit bureaus (Equifax, Experian, and TransUnion) so they may open a file on that individual. Any additional reports sent by creditors will be matched by the individual's Social Security or tax identification number to the history file that was previously created.

Creditor Reports

Creditors send reports containing information about the payment history and balances of those individuals that maintain credit lines with them. These reports can be either positive or negative, indicating either that the credit holder is within account limits and has made payments on time or that he is over his limit or late on payments. These reports are stored in the credit history file so other potential creditors can determine whether or not the individual is likely to make his payments on time and maintain his account properly.

Credit Reports and Credit Scores

When a potential creditor or employer wishes to check an individual's credit history, she is not given access to the entire file that a credit bureau has on that person. Instead, she is sent an abbreviated credit report complete with a credit score that is calculated based on the number of positive and negative items in the credit history. Higher scores are synonymous with good credit, while lower scores are an indication of credit repayment problems. Individuals can request a free copy of their own credit report once per year as well so they can evaluate their credit and check the report for errors.

Credit History Discrepancy

Because a credit history file contains financial and personal information, access to the file is severely limited. Full copies of the file are only used internally at the credit bureau that maintains them and are not even shared with other bureaus. Because not all creditors report to all three credit bureaus, different credit bureaus may report slightly different histories for the same individual. This can lead to slight differences in the credit reports that are received by potential creditors if they make credit inquiries to different bureaus.

Adjustments to Credit History

An individual's credit history and credit score aren't set in stone. As new reports from creditors are received by credit bureaus, they are added to the credit history that the bureau has on file; this can cause the associated credit score to go up or down. These reports will not remain in the credit history file forever, either; many items expire after a set number of years, making credit histories a record of the person's credit over the past 7 to 10 years. Incorrect items can be disputed by the individual whom the history is being kept on, and if the bureau's investigation finds they are in fact incorrect, then those items will be removed.