What does a credit report contain and why is it important?


Learning to read a credit report is actually a big deal for anyone looking to improve their personal finances.

A credit report represents a thorough review of an individual’s financial history, revealing the person’s documented activity on key issues such as personal payment history, loans and creditworthiness, number of open debt accounts , and can even serve as a safeguard against identity theft and consumer fraud.

On the other hand, Americans do not seem interested in keeping track of their credit reports, even though it is one of the most important activities one can undertake to improve their financial situation.

A Consumer Federation of America and VantageScore survey tells the story – it shows that 32% of Americans didn’t take the time to get a copy of their credit report and review it. This figure climbs to 44% for young financial consumers.

A separate report from Wallet Hub reveals that only 41% of Americans check their credit report once a year, even though 84% of Americans say they should do just that.

If you do not review your credit report regularly, you are taking a big financial risk, for the following reasons:

  • You may miss errors on your credit report, which will lower your credit score and cost you money on the loan and credit interest.
  • You may not notice that your identity has been revealed by fraudsters and they use your credit card number or social security number to commit identity theft.
  • You may not notice that your credit score has dropped that you don’t pay a bill or that you overuse your credit card, which lowers your credit score.

Don’t let these scenarios happen to you because you weren’t careful about monitoring your credit report.

Getting back on track, let’s take a look at credit reports and see why they’re so important to personal finance consumers and look at the best way to review these reports for maximum financial benefit.

What’s in a credit report?

A credit report is a documented record of all your credit and debt accounts with a three-digit designation of your entire credit and debt repayment history, known as a credit score.

Here is what is included in your credit report:

  • Your personal information. This includes your name, address, social security number and date of birth. Sometimes a credit report will also include your employment status. These items are not included in the calculation used to record your credit score.
  • Your credit history. This includes credit and repayment history on items such as mortgages, credit cards, student loans, auto loans, and other major personal credit and debt items. This section of your credit report will include the dates you opened a credit or loan account, the exact credit limit or loan amount, your account balances, the amount of debt remaining on those accounts, and your on-time payment history. These factors are all used in calculating your credit score.
  • Current and closed accounts. Your credit report will also include the number of open and closed accounts, such as credit cards or loans taken out in your name, or if you co-signed a loan or credit card for a family member. Any closed accounts that are older than seven years, even if they have outstanding debt, will not appear on your credit report. Accounts that are closed and in good standing may still appear on our credit report for 10 years or for a specific period approved by the credit bureau.
  • Information. This includes credit applications, debit collection items, court decisions, and personal debt and bankruptcy results. Credit inquiries come in two forms: hard inquiries and soft inquiries. Difficult requests are triggered when a creditor or lender checks your credit report after you apply for a loan or credit card. A soft inquiry it’s when a creditor or lender wants to check your credit health before pre-approving you for a loan or credit card, and asks your permission to do so. A serious inquiry can impact your credit score, unlike an informal inquiry. Any request for a credit or loan application will remain on your credit report for two years.
  • Collection accounts. Any debts that remain unpaid will appear in this section of your credit report. Any debt sent for collection, even a credit card debt of $50 or an unpaid phone bill of $25, can appear on your credit report as a negative and unpaid item and therefore can be a negative factor on your credit report. credit.

What is not included in your credit report

Personal financial items not normally included in a credit report include the following:

  • Tax privileges
  • Household payments on regular monthly bills, such as phone bills, utilities, and cable bills.
  • Your bank and savings account activity, including the number of checks you have issued and debit card usage history.
  • Investment portfolio records, including stocks, bonds, funds, annuities, and other investment vehicles.
  • Your annual salary and income earned outside of work, such as inheritance, gambling/lottery winnings, income from part-time work, and money earned from garage sales and online sales (such as using eBay
    (EBAY) – Get the report from eBay Inc. or Amazon
    (AMZN) – Get the report from Amazon.com, Inc. for example.)

Why Your Credit Report Data Matters

While you should always review your credit report data for errors and any signs of fraud or identity theft, there are many other reasons why you should pay close attention to your credit report.

Chief among them is that your credit report and your ultimate credit score are used as a barometer by creditors and lenders to decide whether you will be approved for credit or a loan. A creditor will also rely on your credit report to approve amounts and interest rates related to the approved credit or loan.

Basically, the higher your credit score, as determined by Fair Isaac Corporation (FICO) (FICO) – Get the Fair Isaac Corporation report and the three major credit bureaus (Experian
(EXPGY) Equifax
(EFX) – Get the report from Equifax Inc. and transition
(TRU) – Get the TransUnion report the better your chances of obtaining credit at good interest rates and good credit and loan amounts.

The lower your credit score, the lower your chances of being approved for credit, and even if you are approved, you may well have onerous interest rate terms and low maximum credit and loan amounts. .

The FICO “bands” that define your credit score range from 300 to 850, with the former being the lowest credit score you can record and the latter being the highest credit score you can achieve.

Having a higher score is important, especially if you want to have good credit to buy things like houses, cars, and be approved for credit cards and student and personal loans. It also matters because the higher your credit score, the lower the interest you’ll pay on a loan and/or credit card.

This is because creditors view people with higher credit ratings as a better financial risk and therefore offer a lower rate to borrow money. Those with lower credit scores will see higher rates, as they are viewed by lenders and creditors as a higher credit risk. This means that the lower your credit score, the more expensive it is to borrow money and get approved for credit.

In real terms, look at it this way. Let’s say you apply for a $250,000 30-year fixed rate mortgage with an interest rate of 5%. Using these numbers, the total mortgage cost over 30 years is $483,139, with a monthly payment of $1,342.

If you have a relatively high credit score of 750, your mortgage lender may give you a loan at 4% for the same loan, given your strong credit health and proven ability to pay your debts. This same loan would have a monthly payment of $1,194 ($148 less a month) and could save you over $50,000 over the 30 years of the loan.

It’s cold hard cash that could be used in the stock market, in college savings, in home renovations that improve the value of your property, or in paying off other debts. All are very positive financial moves and all stem from an excellent credit rating.

Tips for getting a high credit score

How to get a great credit score? With these short and simple steps:

  • Pay all your bills on time. Even a late monthly bill payment can affect your credit score.
  • Keep reasonable amounts of unused credit. There is no rule that says you must use all the credit you have been authorized to receive. If, for example, you have a credit card limit of $10,000, it’s wise to keep a card balance of $3,000 or less. This is called “credit utilization” and a low utilization rate will help boost your credit score significantly.
  • Apply for a loan or credit only when you need it. Keeping a heavy lid on loan or credit applications will keep those tough requests to a minimum and help boost your credit score.
  • Carefully review your credit reports, at least once a quarter and at least once a year. Be sure to correct any errors that appear on your report to keep your credit score as high as possible.

Get a free credit report every year

By law (the Fair and Accurate Credit Transactions Act of 1971), you have the legal right to one free credit report per year from each of the three major credit bureaus – Experian, Equifax and Transunion. Go to their websites and request your free report, as follows:

Experian

Equifax

Transunion

It’s always a good idea to get reports from all three agencies, as their calculations differ and you may see different information – and different credit scores – on each report. You can also get a free credit report from all three agencies via AnnualCreditReport.com.

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