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Topics addressed on December 22, 2010:
Explaining what a credit report is and why it is important
What is my credit report?
Your question is simple, very important, and one that is often taken for granted. However, if you are just beginning to use credit or just recently immigrated to the U.S., the concept of a credit report may be entirely new to you.
A credit report is simply a printed or electronic representation of your credit history. Your lenders report to Experian information about the credit relationships you have with them including the types of credit accounts you have, how much you currently owe on them, and your payment history for those accounts.
Experian also collects debt-related public records, specifically tax liens, bankruptcies and civil judgments. Tax liens represent unpaid taxes and are essentially debts you owe to the government. Bankruptcies are court actions that forgive all or a portion of the debts you owed. And civil judgments are debts you owe through the courts as a result of being sued.
There are legally defined permissible purposes for the use of credit reports, which include employment, insurance, licensing, and other business decisions. However, the most common use is for evaluating the risk of extending credit to you. When you apply for credit, the lender will request your credit history, which is compiled and provided in the form of a credit report.
In essence, your credit report acts as your credit references. A positive credit history tells potential new lenders that you manage your finances well and will help you get the credit you want and need. A negative credit history tells lenders you have difficulty managing debt and may not repay them as agreed.
Our national credit reporting systems help facilitate millions of transactions every day. In most cases the role of your credit report is virtually invisible and results in positive outcomes. For example, during the holiday season many people take advantage of instant credit offers to receive discounts on their purchases.
The automated application processes used by lenders utilize your credit report to assess lending risk and can issue an approval in a matter of minutes, helping you have a positive shopping experience while saving money, too.
Credit reports help you, the consumer, obtain the services you need, while protecting the companies who use the reports from risk of financial loss, fraud, or bad business decisions. Because credit references are such an important part of our lives, it is very important that you build a positive credit history and review how information about your credit relationships is being reported.
The first step is to understand what a credit report is and how the process works. You’ve made a good start simply by writing to ask this question.
Thanks for asking.
- The "Ask Experian" team