What is a Credit Report and Why is it Important?

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Q. What is a credit report?

A. Dear Reader,

A credit report is a very important document used by lenders and financial institutions to make their lending decisions and to set the terms and conditions of any credit they give you. To take control of your finances, it is recommended to review and understand your credit report thoroughly. So, let’s start by discussing the kind of information you will find on your report.

What You Will Find on Your Credit Report

Credit reports are generated by credit reporting agencies, otherwise known as credit bureaus. There are several agencies in the nation that compile and maintain consumer information, but the most widely known are Equifax, Experian and TransUnion. Although each generates a different report, they all should contain similar information about your credit behavior. For instance, the reports will divide information about you into four main categories: personal information, public records, accounts, and inquiries. Your personal information category will feature your personal data (name, birthday, social security number, address, etc.) and additional information about your past and present employers. Your public record category is an area of your report that you should strive to keep blank, since it lists any bankruptcies, judgments and liens you’ve had in the past. Then, there is a section about your accounts, which lists all your credit cards, mortgage loans, auto loans, collections, and other credit accounts with a detailed history of when and how much you pay on each account, what is your available credit, and even if you’ve had any missed payments in the last 24 months. Last, but not least, there is a section about new credit inquiries. Any time you apply for new credit, you will create an inquiry that stays on your report for 24 months.

Credit Report Data is Used to Generate Your Credit Score

The data on your credit report is also used to generate your credit score. This three-digit number is also used by creditors and lenders to make their credit decisions. So, it is essential that you maintain a positive credit history and a high credit score to make the most of your finances. A history of late payments, high debt, collections, and multiple credit inquiries in a short period of time will contribute to a negative credit history and therefore, a lower credit score.

Review Your Credit Report Regularly

You should review your credit report periodically for accuracy and correct any mistakes, if necessary. You can get a free copy of three main credit reports from annualcreditreport.com every 12 months. And if you feel you need additional help reading your credit report, don’t hesitate to contact a certified credit counselor from a NFCC member agency. They are available to guide you and provide education on how to read, understand and build a strong credit report.
Bruce McClary, Vice President of Communications
Bruce McClary is the Vice President of Communications for the National Foundation for Credit Counseling® (NFCC®). Based in Washington, D.C., he provides marketing and media relations support for the NFCC and its member agencies serving all 50 states and Puerto Rico. Bruce is considered a subject matter expert and interfaces with the national media, serving as a primary representative for the organization. He has been a featured financial expert for the nation’s top news outlets, including USA Today, MSNBC, NBC News, The New York Times, the Wall Street Journal, CNN, MarketWatch, Fox Business, and hundreds of local media outlets from coast to coast.

If you have a question about your own specific financial situation, don’t hesitate to submit your question to our experts today! If you would like a thorough review of your personal financial situation, contact one of our nonprofit credit counseling agencies today!