Understanding Credit Reports Your Financial Portrait

A credit report is a report containing the details about your credit history. The report is compiled by one of three major credit bureaus – Experian, Equifax, and Transunion. They collect information from a variety of sources to create credit reports, which vary slightly depending on which bureau produced the report. Credit reports generally contain personal identifying information, such as date of birth, social security number, current and previous addresses, and employment history.

Credit reports also contain records of your credit accounts, including credit cards and loans. For each account, the credit report will list the date the account was opened, the credit limit or loan amount, payment history, and if and when the account was closed or paid off.

Additionally, credit reports list credit inquiries, i.e., whenever someone requests access to your credit report. These requests are differentiated as “voluntary,” which are made at your behest (such as when you apply for a loan), and “involuntary,” which are requests made without your express permission (such as a credit card issuer that’s interested in offering you a pre-approved card).

Finally, credit reports list any public information such as bankruptcies, foreclosures, lawsuits, liens, and wage garnishments, and any information about defaulted debt provided by collection agencies. Most of this type of “negative” information remains on your credit report for seven years, although bankruptcies are typically listed for ten years.

Your Credit Report

Your credit report is distinct from your credit score, which is a three-digit number that uses your credit history to predict the risk of lending you money. You’ve probably heard of FICO, which is the most commonly used credit score. FICO scores can range from 350 to 850. The median FICO score in the U.S. is in the low-700 range.

When you’re looking to take out a mortgage, lenders will check both your credit report and your credit score. The terms of your loan, such as the interest rate, will largely be determined by your credit score.

But your credit report is important to lenders because it will tell them specifics about your credit history, particularly any negative events or alarming patterns. Lenders don’t look just to see whether you’ve had any bankruptcies or foreclosures. They’ll also check to see how much credit you’ve recently applied for, whether you’ve just been making the minimum payment on your various accounts, and whether you’re responsible for anyone else’s debt (i.e., by co-signing for them).

Since lenders will check your credit report, and your credit score will be based primarily on your credit report, it’s crucial that you check it before you start shopping for a house. You can obtain a free credit report from each credit bureau at AnnualCreditReport.com.

Once you have your credit report, be sure to carefully review it for any errors. If you find any, you’ll need to contact each credit bureau to have them corrected. You can find directions for contacting each credit bureau here.