What is a Credit Report?

By Arthur B. — Published February 05, 2018

What is a Credit Report?

What is a Credit Report?

“Credit Report” – two words that spread panic and drive chaos into the hearts of people. Okay, we might have exaggerated a bit there. However, credit reports do cause a fair bit of confusion among those who hear about them for the first time.

So, we decided to clear the air about what credit reports are and just how important they are.

A credit report is simply a compilation of all your financial information, especially with regard to how you manage your debt. It typically contains data/information about the amount of pending debt you have, your punctuality with regard to bill payments, bankruptcy filings (if any), possible vehicle repossession, possible home foreclosure, and other basic stuff like your home address and where you are employed.

The point is, there’s a lot of stuff going on in your credit report and almost all of it is important.

Who collects the information?
Credit reports are created by entities called credit reporting agencies or credit bureaus.

In the US, we actually have three of them – TransUnion, Experian, and Equifax. These credit bureaus approach the financial institutions that you do business with and collect the information from them. Of course, the financial institution has to agree to the whole thing, which, more often than not, they do.

The collected details are then entered into your credit report by one or all three credit bureaus. The information is, of course, collected on a periodic basis to ensure relevance. Now, some institutions may not be punctual with the sharing of information as far as monthly payments go. However, they will definitely alert the credit bureaus if you go back on a few payments.

For example, you won’t be seeing your cable bill payments being updated on the credit report. However, if you’ve delayed the payments for as long as 6 months, it’s likely to make it into the report as a debt collection.

Reading a credit report
The average credit report contains the following details:

-Personal information such as name, address, and occupation.
-Records of the all the financial institutions you’ve approached or have done business with, especially the ones to whom you’ve submitted a credit application. The report will also have a record of every time your credit report was accessed. These records are typically kept for a period of 2 years and 1 month.
-Your accounts such as auto loans, mortgage loans, credit cards, and collections.
-Public records of bankruptcies, civil judgments, and tax liens.

Why is a credit report important?
A credit report is important for many reasons. The most basic reason being that it contains your credit scores. Your credit scores are like an important ranking that determine your financial future. These credit scores are provided based on the information contained in your credit report.

You’re given a healthy credit score when you’ve managed to make your payments on time consistently. This, in turn, positions you as a favorable borrower. You’ll find that a good credit score makes it easier for you to receive loans, especially on terms that are beneficial to you.

The exact opposite is what happens with a poor credit score. You become a liability rather than an asset. Lenders and other financial entities will think twice before approving your loan or credit card application. Even if they do eventually approve it, you will likely be subject to exorbitant interest rates.

So, make sure you have your credit report ready for reference just before you make a large purchase. Review it before making a decision. Sometimes, credit reports can have inaccurate information, which must be corrected ASAP.

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