A credit report is like a report card on how you manage your finances. It is a historical record of how and when you pay your bills, how much debt you have, and how long you have been managing credit accounts.
Your credit report lists things like accounts that you have not paid and have been turned over to a collections company, if you have filed for bankruptcy or if you have had a car repossessed. Companies use information on credit reports to make decisions about granting credit, to verify identities, and other purposes defined by federal law.
How Is a Credit Report Made?
This video explains the making of an Experian credit report.
Why Is Your Credit Report Important?
Your credit report is important because it is the basis for your credit scores, important numbers that can have a big financial impact on your life. The information on credit reports is the raw material used to create credit scores.
If your credit report shows a long history of on-time payments, it will lead to positive credit scores, which will help you get credit cards and loans on more favorable terms. Conversely, bad financial habits recorded on your credit reports will lead to low credit scores, which will make it harder for you to get approved for credit cards and loans, or more expensive if you can get them.
What's In a Credit Report and How Do You Read It?
Your Experian credit report is divided into four sections:
- Personal Information: Your name, addresses, employers.
- Accounts: Credit cards, mortgage loans, auto loans, collections and all other credit accounts.
- Inquiries: Records of the names of companies and the dates your credit report was pulled for a credit application. Inquires will stay on your Experian report for 25 months.
- Public Records: Information about bankruptcies and civil judgements.
Read more here about the basics of your credit report, how often it's updated, and how to fix any issues such as something that doesn't look familiar to you.
Where Does the Information on Credit Reports Come From?
The information on your credit report is furnished to the credit reporting agencies, Experian, Equifax and TransUnion, from financial institutions and other companies that you do business with. Courts, collection agencies, and state and local governments also contribute information.
Companies are not required by law to report their customers' data to the credit reporting agencies; however, most companies do report on the status of accounts to one or all three credit bureaus every month. Experian maintains credit reports for more than 220 million credit-active consumers in the U.S.
When Should You Get a Credit Report?
Get your credit report two to three months before a large purchase, such as a home, a car or college financing. Review it carefully to make sure that you recognize all the accounts listed and agree with the information displayed. If there is anything on your credit report that you believe is inaccurate, you can initiate a dispute.
It is also a good practice to review your credit report from each of the credit reporting agencies at least once a year. Associating checking your report to another event in your life—like the New Year holiday or your birthday—can help you remember.
Where Can You Get Your Credit Report?
You can get your free credit report with no credit card required directly from Experian. In addition, you can get one report every 12 months from each of the three nationwide credit reporting agencies at AnnualCreditReport.com.
Under the Fair Credit Reporting Act, If you have been turned down for credit, employment or insurance you qualify for a free report. Contact the company that denied you service and request the name and contact information of the credit bureau from whom they obtained your information. You can then contact this credit bureau within 60 days using the information provided to obtain your free credit report.
Reviewing Your Credit Report
- When you take a look at your credit report, first make sure that you recognize all the accounts listed on your report. If not, get in touch with that company to find out what is happening with the account and ensure it is not the unfortunate result of identity theft.
- Make sure the account status information is correct for your accounts. If it is not, start by calling the company, then initiate a dispute.
- Check your credit utilization ratio by looking at the credit limit reported on an account, then checking the balance reported. If your balance is more than 30% of your credit limit, high credit utilization could be negatively impacting your credit score.
- How long has your oldest account been open? Lenders want to see a long history of good credit habits.
- Do you have a good mix of the types of credit open, such as credit cards, an auto loan and a mortgage? This positively impacts your credit score.
How Information in your Credit Report Affects Your Credit Scores
All the information above affects your credit scores, with payment history and credit utilization being the two most important factors.
Your credit report can help you truly assess what information is making your credit scores what they are, then make a plan to start on the path to a score improvement.
Editorial Disclaimer: Opinions expressed here are author's alone, not those of any bank, credit card issuer or other company, and have not been reviewed, approved or otherwise endorsed by any of these entities. All information, including rates and fees, are accurate as of the date of publication.
This article was originally published on December 20, 2017, and has been updated.