What is a credit report?
Credit reports contain information that can help individuals access loans, credit cards, and employment. They provide the information that is necessary to acquire all types of loans, including student loans, mortgages, home equity, auto, and home equity lines of credit.
Important facts included in an individual’s credit report can influence the interest rate and terms that are offered with specific loans. Additionally, this information can impact the amount of the loan or money that they will be approved to borrow. The information included on credit reports can eliminate the possibility of obtaining any type of loan at all. Lenders use the credit report of a consumer to gauge his credit worthiness so that they can assess the risk of offering him a mortgage or loan.
Credit reports can assist a consumer in obtaining a new credit card or the information contained on them can prevent that from occurring. A consumer with an excellent credit report score can obtain a generous credit limit whereas a consumer with a poor credit score might not be able to obtain a credit card at all. Moreover, an individual’s credit report can prevent him from being offered the job for which they have applied.
What kind of information is listed on credit reports? In general, credit reports include many different details concerning a consumer’s financial history. This includes information about credit card accounts, mortgages, home equity loans, auto loans, student loans, employment history, income level or salary, payment practices, and legal activity.
Credit reports include facts about a consumer’s financial history over a long period. In general, much of the information on the report will have been taken from the last seven to ten years. However, particular types of information can date back even further depending on the company that is compiling and maintaining the information. Specifically, a consumer’s employment history might date back for twenty or more years. Most credit reports contain a comprehensive list of financial transactions, including the good and the bad.
- The consumer’s full legal name
- Current and past address
- Student loans
- Mortgage loans including initial balance, current balance, and term
- Automobile loans – both used and new
- Home equity loans – both short term and long term
- Home equity lines of credit – including current balance and term
- Tax liens – federal and state
- Credit card accounts – major banks
- Store specific credit card accounts
- Number of credit inquiries made recently
- Delinquencies on all billing payments including utilities
- Lawsuits and the results
The details listed with each type of information generally include the date of the initiation of the action, the consumer’s current level of debt and income, the consumer’s payment history or habit of paying his bills – including whether she or he pays bills on time, pays bills late, or does not pay the bills at all.
The specific type of credit card accounts, loans, and mortgages are included within the report, including the name of the lender. Additionally, the length of time that the account has been held by the consumer is included. Credit reports are designed to help financial lenders and prospective employers assess the risk that is associated with a specific consumer as far as extending credit, loaning money, or offering employment. Each credit report includes a credit score that can be used to quickly assess the potential risk to the lender.
Credit scores range somewhere between 300 and 850. Most consumers fall somewhere in between the scores of 540 and 780. Higher scores indicate that a consumer has a stellar credit history with very few negative items, if any. A consumer with a score of 700 or more typically should not experience any difficulty in obtaining a loan of any type, a mortgage or home equity line of credit, a new credit card account, or new employment.
Alternatively, consumers whose credit scores fall below 620 on their credit report could encounter difficulties when attempting to obtain a mortgage, student loan, or acquire a new credit card. They might even have trouble when they apply for a new job. Lower credit scores are typically associated with the potential of being a high risk.
Consumers who have credit scores between 600 and 700 can usually obtain new credit cards and loans. However, the terms or interest rates offered with these might not be as favorable as the ones that are offered to consumers with higher credit scores. In many cases, a consistent effort to pay bills on time and to lower their existing level of debt can raise their scores and allow them to obtain terms that are more favorable.
All credit scores are calculated with a formula and the details listed on the credit report. Quite a few different credit bureaus compile credit reports. Since each of these agencies use their own method for securing information, listing information, and calculating credit scores, the resultant scores vary from one credit bureau to another. In most cases, the difference is small.
Therefore, when a consumer or a lender obtains a copy of a credit report through one credit bureau, it can be different in the actual numerical value of the credit score and in the details that are listed on the report. Even though the differences are minor in most cases, some lenders choose to obtain several credit reports for each consumer through different credit bureaus.
The tasks of a credit bureau are to compile and maintain credit reports and calculate credit scores on the majority of consumers. There are three major bureaus that operate nationwide – TransUnion, Equifax, and Experian, who are responsible for the vast majority of credit reports and are usually the first choice for lenders who need to obtain someone’s credit report.
The Federal Government passed the FCRA or Fair Credit Reporting Act in 2003, which permits consumers to have free access to their credit reports and allows consumers to obtain a single copy of their credit reports from each one of the three major credit bureaus, TransUnion, Equifax, and Experian, once every year. Consumers should consider acquiring a copy of their credit report several times a year to verify the accuracy of the information that is compiled there.
The information and details maintained in every credit report should be accurate. All consumers have the right to request an investigation by the specific credit bureau if they believe that any of the information is not accurate. If the credit bureau discovers that the information is inaccurate, it will remove the information from the report. If the information is accurate, then it will remain on the report no matter how negative it is.
Credit Advice for Students
- College Finances Home
- Building Good Credit for College Students and Recent Graduates
- Credit Card Debt Management for College Students
- Financial Literacy for College Students
- Give Yourself a Financial Check-Up Once a Year
- Practical tips for building good credit
- The Financially Savvy Student
- Tips on Managing Your Credit Score