Credit reports provide a detailed history of a consumer’s credit accounts. The reports contain information including account payment history, credit limits and balances, public records and recent credit inquiries. Lenders check credit reports to evaluate how risky it might be to extend credit to someone.
What Is a Credit Report?
A credit report is a statement containing information about your credit history and current credit status. Most people have multiple credit reports, one from each of the major credit bureaus in the United States.
These three credit bureaus — Equifax, Experian and TransUnion — collect data on individual consumers’ credit habits, including the percentage of available credit they’re using and whether they have ever missed payments on a loan. The bureaus then publish those details as credit reports.
- Personal information like your government name, address, birth date and current and past employers.
- Account payment history, including records of any missed or late payments.
- Account limits and balances which are used to calculate your credit utilization ratio.
- Public records such as bankruptcies, foreclosures and tax liens.
- Details regarding who has recently viewed your credit report and when.
Purpose of Credit Reports
Lenders, including banks, landlords and insurance companies, use credit reports to determine your credit scores. A credit score represents a consumer’s creditworthiness, or how likely they are to pay back a loan on time. Lenders use credit scores to decide whether to lend money to someone based on their history of paying off debts.
Why Are Credit Reports Important?
Your credit report is akin to a report card for your personal financial history. Because financial institutions use the information in your report to determine your creditworthiness, having negative entries on your credit report can present significant obstacles to achieving your financial goals.
A good credit report will earn you a strong credit score, which can help you get better loan terms, favorable mortgage and insurance rates, a larger credit limit and many other benefits. Conversely, a poor credit score and negative information on your report can make it harder to buy a house, get a loan or credit card, rent an apartment, lease a car or even get an affordable insurance rate.
Negative credit entries can majorly impact your financial wellness, so it’s a good idea to check your credit reports regularly. According to Consumer Reports, more than a third of American consumers have at least one error on their credit report. You can access your credit reports from each of the credit bureaus once per year for free.
If you do find false or outdated information on your credit report that might be damaging your score, you can file a dispute with the credit reporting agency that provided the report. Under the Fair Credit Reporting Act, credit bureaus are required to investigate disputes within 30 days of receiving them.
The first step to disputing an inaccurate report is sending a dispute letter to the credit bureau reporting the inaccuracy. You can use this sample dispute letter from the Federal Trade Commission to help you get started.
What Is the Difference Between Credit Scores and Credit Reports?
Both credit scores and credit reports are used to measure a consumer’s creditworthiness based on their financial and payment histories. But there are some significant differences between your credit report and credit score that are important to understand.
Your credit score is expressed as a number between 300 and 850. Your credit score may be different depending on which reporting agency provided the information, which scoring model is used and when the bureau last calculated your score.
Credit scores are calculated based on the information included in your credit report. Your credit limits, balances and missed payments for current and past credit accounts all impact your resulting credit score.
Creditors such as loan and credit card companies can choose to report information on a regular basis to the bureaus that create credit reports. Most of the time, creditors report information once a month. When new information is reported to the credit bureaus, that information is also updated on your credit reports. When your report changes, your credit score will typically fluctuate.
Your credit score gives lenders and other financial institutions a quick snapshot of your overall credit history and financial standing. The higher your score is, the more likely you will be able to pay back a loan on time and in full in a creditor’s eyes.
Your credit report, meanwhile, gives lenders a more detailed overview of your credit history and relationship with debt. With the information in a credit report, lenders can learn about your experiences with different types of credit. Most lenders will look at both your credit score and your credit report before deciding on a loan offer.
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- Consumer Financial Protection Bureau. (2020, September 1). What Is a Credit Report? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-a-credit-report-en-309/
- Consumer Financial Protection Bureau. (2020, September 1). What Is the Difference Between a Credit Report and a Credit Score? Retrieved from https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-credit-report-and-a-credit-score-en-2069/
- Ejad, S. (2021, June 10). A Broken System: How the Credit Reporting System Fails Consumers and What To Do About It. Retrieved from https://advocacy.consumerreports.org/wp-content/uploads/2021/06/A-Broken-System-How-the-Credit-Reporting-System-Fails-Consumers-and-What-to-Do-About-It.pdf
- Equifax. (n.d.). How Often Do Credit Card Companies Report to the Credit Bureaus? Retrieved from https://www.equifax.com/personal/education/credit-cards/credit-card-reporting-credit-bureaus/
- Federal Trade Commission. (2021, December). Understanding Your Credit. Retrieved from https://consumer.ftc.gov/articles/understanding-your-credit
- Federal Trade Commission. (2021, May). Disputing Errors On Your Credit Reports. Retrieved from https://consumer.ftc.gov/articles/disputing-errors-your-credit-reports
- Sato, G. (2021, May 14). How Do Lenders View Your Credit? Retrieved from https://www.experian.com/blogs/ask-experian/how-lenders-view-your-credit/