A credit report is a vital record of your credit history.
It shows what types of loans you have, how much you owe and how well you do with repayment. If you have a history of paying your bills late or failing to pay, your credit report shows that. If you always pay your bills on time, your credit report shows that. A credit report gives lenders an idea of how risky it is to lend you money using your past as a predictor of your future.
It’s important to know what’s on your credit report because there could be errors and you could become the victim of identity fraud. Thanks to the Fair Credit Reporting Act of 2005, you are entitled to one free credit report from each of the three credit bureaus—Experian, Equifax and TransUnion—every 12 months. You can get these reports from AnnualCreditReport.com. It’s best to request one credit report every 4 months rather than all three at the same time. That way you can monitor any new activity and catch any potential problems right away.
When you get your credit report, you need to look through it carefully to make sure all of the information is correct. Incorrect information can drive down your credit score and cost you big in higher interest rates.
A credit report is broken down into four sections:
1. Identifying Information
Your name, your spouse’s name, your current and previous addresses, your date of birth, your driver’s license and your employment information are included in this section. There may be variations on your name if you’ve been married or applied for credit using different names.
2. Credit History
This section includes each account you have with a creditor and info about that account. That info may include when the account was opened, the account type, the total available credit (or high limit), the credit balance, the monthly payment, the account status and the payment history. Payments made more than 30 days late, missed payments and charge-offs are all negative marks on your credit. Some reports use codes from 1 to 9 to show payment history. Lower numbers are preferred.
3. Public Records
This section lists whether you’ve had any bankruptcies, judgments or tax liens. These are all negative marks on your report. Ideally, this section should be empty.
4. Hard and Soft Inquiries
This section lists who asked to see your credit report and when. Inquiries are either hard or soft. Hard inquiries are ones you apply for like a credit card application. Soft inquiries are mainly from potential creditors who check you out for pre-approval offers. Many hard inquiries can drive your credit score down.
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