Understanding Your Credit Report

If you’re looking to make a big career move or purchase, the chances are relatively high that your credit score will come into play. Your credit score is more than just a number. It’s an important aspect of your creditworthiness that plays a role in a variety of major life events, from passing a background check for work to getting an auto loan, opening up a new credit card, and even applying to rent an apartment. As a result, you must have a full understanding of how your personal finances impact both your credit report and credit scoring in general.
The first thing to know about credit reports is that three major credit bureaus furnish data about your credit to potential lenders, landlords, and employers. The three big credit bureaus are TransUnion, Equifax, and Experian. While each credit reporting agency has its own way of calculating your credit risk and credit score, you’ll generally see a pretty consistent FICO Scores between the three agencies. That being said, it’s not uncommon for one credit reporting company to have a higher score than the other two. This is one reason that for major purchases such as mortgages all three of your scores may get looked at and averaged together to calculate different aspects of your loan, such as your interest rate.
All of this information is helpful, but how exactly is your credit report calculated and why does it matter? Keep reading to learn more about what your credit report is, how to check it, and what factors from your credit report play a role in determining your credit score.

Why is your credit report important?

Your credit report is important because it impacts your credit score — and your credit score is important for a variety of reasons. For starters, lenders may look at your credit to determine the interest rate and amount they’re willing to loan you when it comes to a personal or auto loan. Credit card issuers use your credit score to determine your credit limit and interest rate when issuing a new credit card, too.
That being said, landlords and insurance companies have just as much of a vested interest in your credit report, since it’s one reflection of your trustworthiness and ability to handle your finances. For example, a landlord might give your rental application a second thought if she sees that your payment history has several recent late payments.
As a result, even if you’re not planning on applying for a new credit card with one of the many credit card companies out there, it still behooves you to stay on top of your personal finances and credit history if you intend to have as many opportunities available to you as possible. This is one of the reasons that working with a credit repair company could be a helpful step in getting your credit into the higher score ranges if you’re planning a major life decision several months out. Since different entities look at your credit history as an example of how you handle your finances, it’s important to put your best foot forward in this area.

What details go into your credit report?

A helpful way to think about your credit report is like a report card from school. Your credit report will contain a variety of details about your past credit accounts, current credit card balances, installment loans, and more. Each of these is similar to a different subject that might appear on your school report card, and different lenders may weigh each of these grades differently depending on what sort of approval you’re looking to get.
Here’s a quick rundown of some of the information you can expect to look at on your credit report.

Personal information

The first thing to know about your credit report is that it contains personal information that identifies you specifically. Your name, address, and social security number are all a part of your credit report, and it’s always a good idea to make sure that they are accurate before you look at any other part of your report. Especially if you’ve moved a lot for work or school — or if you are named after a parent — sometimes mix-ups do happen.

Credit cards you’ve opened

Perhaps unsurprisingly based on the name, your credit report also includes information on credit cards that you have opened. Generally speaking, a mix of credit cards can account for about 10% of your overall FICO score. That being said, you don’t want to have too many or too few types of credit accounts on your report.
Your available credit on each card is another important factor in your credit report and credit score. This is because if your credit cards are all but maxed out, you may be viewed as a riskier individual who can’t keep their credit card payments in check. It’s a good rule of thumb to pay off your credit card each month in full to keep your overall utilization from card to card low.

Any loans you may have

Loans are another major component of your credit report, especially when it comes to the monthly payments and the outstanding balance associated with each loan. Whether you have student loans, an auto loan, or a mortgage, each of these loans will play a role in your credit report and credit score.

Remaining balances

How much you owe on each of your loans is another aspect of your credit report and credit score. Especially if you’re looking to purchase something like a house, lenders may calculate your debt-to-income ratio, or DTI, to see how much of your income each month is going to minimum payments on loans. Additionally, how much overall debt you have remaining in each loan is also looked at.

Timeliness of your payments

Particularly if you’re looking to rent an apartment, the timeliness of your payments is a critical aspect of your credit report. Landlords, creditors, and lenders all want to know that you’re going to not just be good for your money, but also provide payments on time. If you’ve missed even one payment, it can negatively impact your credit a significant amount. When it comes to calculating your FICO score, payment history accounts for about 35% of your overall total score.

Any credit inquiries

There are two different types of credit inquiries that will appear on your credit report: hard inquiries and soft inquiries. A hard inquiry sticks on your report for several years and can negatively impact your credit score. Hard inquiries are made by lenders when you’re applying for more credit for a financial purpose. Too many hard inquiries may raise some red flags, as it could show that you are consistently trying to open more credit cards rather than appropriately paying down your cards.
That being said, while soft inquiries appear on your credit report, they don’t negatively impact your credit score. An example of a soft inquiry that might appear on your credit report is when a landlord pulls your credit to check on the timeliness of your payments.

Bankruptcy

If you've ever filed for bankruptcy, that information will also appear on your credit report. A Chapter 13 bankruptcy stays on your credit report for seven years, while a Chapter 7 bankruptcy stays on your credit report for 10 years.

How your credit report impacts your credit score

Based on the information provided in your credit report, you will get one of a few different credit scores. Your credit score may range anywhere between a 300, which is considered a bad credit score, and 850, which is near-perfect credit. While these are numerical values, they generally break down into categories such as Poor, Good, Very Good, and Excellent. It’s best to have excellent credit, and understanding the aspects of your credit report that are hurting and helping your credit score can allow you to improve your credit over time.
Some of the biggest factors from your credit report that inform your overall credit score include your length of credit history, how much money you owe across multiple cards and loans, and the timeliness of your payments. If you have had multiple credit cards and loans for several years, that’s seen as much more helpful information than somebody who just opened their first credit card two months ago.
Just like you can get a free credit report, you’re also eligible to access your free credit score from a variety of websites, such as Credit Sesame. Discover has a free-to-use online platform for monitoring your credit score, even if you don’t have a credit card or loan from Discover. You can also access your free credit score online using a website like Credit Karma.

Accessing your credit report

When it comes to accessing your credit report, the internet makes it a relatively easy process. Although several different websites are offering the ability to look at your credit report for free, one of the simplest to use websites—and the one recommended by the Federal Trade Commission on their own website— is www.annualcreditreport.com. Although the website looks a bit dated, you can rest assured that the information provided on annualcreditreport.com is secure and accurate.
As the name suggests, annualcreditreport.com allows you to access your credit reports for free once a year online. You’ll start by entering some personal information about yourself, including your address, name, and social security number, and then will be asked some screening questions to verify your identity. Afterward, you’ll be able to pull your credit report from each bureau. If it’s your first time pulling your credit report, it’s best to just download your report from TransUnion, Experian, and Equifax; however, if you ever want to pull a report from only one or two bureaus, annualcreditreport.com will let you do that, too.
Once you download your credit report, you can look at it and review that it’s accurate. If for some reason you do find an error on your credit report, you’ll know exactly what to dispute based on the contents of each report, making annualcreditreport.com a valuable asset. Just make sure to submit a dispute to each of the three major credit reporting agencies, since they don’t communicate with each other. Although an investigation into a dispute can take up to 35 days to clear, your credit score will be better off after you’ve disputed an error on your report.

Why you need to keep an eye on your credit report

It’s important to know how to access your credit report for a few different reasons. For starters, looking at your credit report can help you understand what is impacting your credit score, ultimately allowing you to improve your credit over time. If you don’t have the full picture of your credit or understand what factors are playing a role in your score being what it is, you may not be able to boost your credit as quickly.
Another reason that it’s important to access and monitor your credit report is that it can help you ensure that you haven’t been a victim of identity theft. If when looking at your credit report you realize that there are accounts created in your name or a loan that you don’t recognize, then you may have had your personal information compromised. In this scenario, it’s important to contact the Federal Trade Commission and let them know that you believe you may have been a victim of identity theft so that they can begin to look into the incident.
Additionally, you’ll want to freeze your account, change passwords for your banking accounts and other websites where personal information is stored, and contact your creditors and bank to let them know you’ve been a victim of identity theft. Enrolling in a fraud alert service may also be a wise move to make.

The bottom line

If you didn’t grow up in a household where your parents talked much about money, you may not have the best foundation when it comes to personal finances. That being said, just because you were raised a certain way doesn’t mean that it’s an excuse to move through the world uninformed about important matters of personal finance. Understanding credit and what your credit report is can give you important information to better build the life you want to.
For starters, having good credit means that you have better options (and more options for that matter) at your fingertips. A higher credit limit or better interest rate means that your upcoming vacation is that much more affordable. It also means that when it comes time for you to purchase your first home, you’re going to qualify for a more competitive rate and save tens of thousands of dollars over the lifetime of the loan.
While having good credit has a clear impact on your personal finances, your credit score and credit report can play a role in other aspects of life, too. For example, if you’re looking to rent an apartment or are undergoing a credit check or background check as part of a job application, the better your credit is, the more likely you are to qualify for these opportunities. As such, it behooves you to understand how your credit report is calculated.
With the information above, hopefully, you have a better understanding of not only what factors go into your credit report, but why your credit report and credit score are an important aspect of your life. When you’re armed with the knowledge that your payment history, number of accounts, and credit card usage play a role in your credit report and score, you’re able to better manage these factors effectively.
Especially if you find a discrepancy in your credit report that allows you to dispute an error or file for identity theft, you can leverage the factors in your credit report to improve your score over time.
While it’s easy to get bogged down in all of the nitty-gritty details that go into issues of personal finance, it is important to understand the elements of personal finance that impact your life. As such, if you have a goal to buy a car or a home, it’s worth your time to learn more about your credit report and how credit scores are calculated in general. Beyond that, it’s always a good idea to know how your own financial decisions may play out in the future, meaning that if you are someone who has multiple credit cards open or has taken out a personal loan, it’s critical to have a thorough understanding on how your management of those accounts can set you up for success or hinder you in the future.
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