What is a Credit Report?

A credit report is a record of your financial history in managing and repaying debt, and it is what card lenders and other companies view when deciding whether to do business with you. They can be used by lenders to decide to loan you money or what interest rates to offer you, or even whether to offer you insurance. Included in your credit report is a record of your credit activity, and your current credit situation, including your loan paying history and the status of your credit accounts. 

Importantly, most people have more than one credit report. There are dozens of credit bureaus in the U.S. that produce your credit reports, but the main credit bureaus that are used by the majority of financial institutions and businesses to check consumers’ credit are Equifax, Experian, and TransUnion. In this article, we will cover what exactly is in a credit report and why they are important.

What is in a Credit Report?

Though there are many credit bureaus, and they may organize your data differently, the information stored in your credit file at each bureau is essentially the same. The information in your credit report can be classified into three categories:

1. Credit History: The number and type of opened, active, and closed accounts you have (credit card, auto loan, mortgage, etc.), age of these credit accounts, credit utilization rate, the account balances and your payment history—which includes the number and severity of late payments.
2. Credit Inquiries: There are two different types of credit inquiries. When you apply for credit a lender will perform a hard pull of your credit report, and it will appear on your credit report as a voluntary or hard inquiry. This is different from involuntary or soft inquiries which occur when you check your score online (like with BestCreditCard) or when lenders pull your report to make you a pre-approved offer in the mail. It is important to note that only hard inquiries are visible to other people.
3. Public Records and Collections: This includes information such as, any bankruptcies, foreclosures, or suits.

Your credit report will also include general identification about you—your name, address, date of birth and Social Security number. The Fair Credit Reporting Act (FCRA), allows you to request a free copy of your credit report once every 12 months from each of the nationwide credit reporting companies (Equifax, Experian, and TransUnion). And it is also important to note that while income is not part of your credit report, lenders still factor your income into their lending decisions, but they typically get this information directly from you during the credit application process. Known as the ability-to-repay rule, lenders are required to make a reasonable and good faith determination that you are able to pay back the loan.

Why are Credit Reports Important?

The data in your credit report is used to create your credit score, which is incredibly important for your financial future. If your credit report shows a long history of on-time payments, your credit score will likely be strong, which will in turn, help you get loans on favorable terms, potentially saving thousands of dollars. Conversely, late payments, bankruptcy and similar negative indicators on your credit report can lead to a lower credit score, which could stop you from getting the loan you need to buy a home or qualify for the credit cards with the best rewards and rates.

Furthermore, credit reports can also show any unauthorized credit activity, such as identity theft. Any credit inquiry, new loans or credit accounts that you are unaware of could potentially indicate fraudulent activity. As a result, it is vital to review your credit reports regularly to help you detect any suspicious activity and stay on top of your finances.

Conclusion

A credit report is a detailed summary of an individual’s credit history. Prepared by a credit bureau, these reports include personal information, a historical record of how and when you pay your bills, how much debt you have, how long you have been managing credit accounts, as well as any public records such as bankruptcies. Credit reports are incredibly important because they include all of the information that will be used by lenders to decide whether you are someone to do business with, including determining your credit score.