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What is a Credit Report and Why is it Important?

Understanding what a credit report is could be confusing. Learn what information a credit report contains and how to get your credit report for free.

By Megan Doyle | American Express Credit Intel Freelance Contributor

6 Min Read | November 06, 2019 in Credit

 

At-A-Glance

A credit report is a detailed account of your credit history.

They’re an important measure of your financial reliability.

 

Your credit report might be used in a variety of situations, from getting a credit card to buying a house—or even applying for a job.

In today’s Web-cookied, location-based digital era, it’s not uncommon for the websites and apps you use to track nearly every move. But did you know there’s also a group of credit reporting agencies likewise tracking your financial payment history? The credit reports they generate are detailed, objective accounts of your credit situation and financial history—separate from, but used to help calculate, the simplified numerical representation of financial reliability known as your credit score.

 

And it may not matter whether or not you’ve ever had a credit card. If you’ve ever taken out a loan or simply paid a utility bill, chances are one of the three major credit reporting agencies (Experian, TransUnion, and Equifax) are keeping tabs on your “creditworthiness.”

 

Why Your Credit Report Matters

Your credit report and credit score are objective measures of your financial reliability, and therefore can carry a lot of weight in a number of circumstances.  Depending on the current status of your credit accounts and the history of your bill and loan payments, you might think of your credit report as a trusty companion—or perhaps a looming shadow.

 

If lenders deem you creditworthy, your credit report might help you get approved for a new credit card with great perks, and even help you land a job or a new apartment.

 

But if your financial history is rocky, the credit or loan application process might seem daunting. Understanding what’s in your credit report and how it translates into your credit score can help you know what to expect.

 

What Information is Included in Your Credit Report

The Consumer Financial Protection Bureau (CFPB) notes that each credit bureau creates a slightly different credit report, but most are split into four or five main sections1:

  1. Personal information includes any name you’ve ever used in connection with an account, your birth date, social security number, and former addresses.
  2. Credit account information includes current and past credit accounts (such as credit cards, loans, and mortgages), account balances, payment history, and how long each account has been open.
  3. Debt collections may appear if a lender has ever transferred overdue account
    payments to an external collection agency.
  4. Public records list applicable history of bankruptcies, foreclosures, liens, or civil suits.
  5. Recent inquiries list any entities that have recently inquired about your credit, like credit card companies or lenders.

 

How to Get a Free Credit Report

Every 12 months, you’re entitled to a free credit report from each of the three major credit bureaus. According to the U.S. Federal Trade Commission (FTC), annualcreditreport.com is the only website authorized to provide free reports.2  Some experts suggest spreading your three free reports over the course of 12 months to monitor your credit throughout the year.3

 

It’s worth noting that this source may not provide your credit score. However, many banks and credit card companies offer free access to your credit score. Otherwise, you can purchase your credit score from one of the three major credit reporting bureaus.4

 

How Banks and Businesses Use Your Credit Report

Lenders, businesses, and other entities may look at your credit report and credit score to help decide how financially trustworthy you are. Thus, establishing good credit can help you get approved for loans or a credit cards, earn lower interest rates, get approved for higher lines of credit, and more.

 

There are two main types of credit inquiries: “hard” and “soft.” Hard inquiries usually occur when you apply for a loan, mortgage, or credit card. But they often come with a price. CFPB points out that hard inquiries can hurt your credit score since most scoring algorithms pay attention to how often you apply for credit.5

 

Soft inquiries provide a basic overview of your credit history and won’t impact your credit score, according to CFPB. Prescreened credit card or loan offers typically rely on soft inquiries.

 

And don’t worry, your credit report isn’t openly accessible to anyone. Thanks to the Fair Credit Reporting Act (FCRA), strict laws dictate that only governments and businesses with legally acceptable reasons can request access.6

 

Ways Credit Reports Can Help You Achieve Financial Goals

Whether you see your credit report as a friend or foe, it will always be there to vouch for your reliability when you’re in the market for a house or a new car. But credit reports are used for a variety of other important things, too. Here are some of the less obvious ways your credit report might be used:

  • Getting a job. Prospective employers can look at your credit report to determine your dependability and inform employment decisions about you.7
  • Car insurance rates. Car insurance companies may check a credit report to determine your premium.8
  • Renting an apartment. Solid credit history can indicate the likelihood you’ll pay rent on time—thus making you a better prospective tenant.
  • TV, internet, and cell phone services. Some cable, internet, and cell phone providers might look at your credit report to determine whether or not you have to make a security deposit before starting service.9

 

The Takeaway

A credit report is a detailed account of your credit history that lenders, businesses, and credit card companies use to assess your financial reliability. And because it measures “reliability,” credit reports are also often referenced in a variety of situations beyond getting a credit card or loan, such as renting an apartment or applying for a job. 

Megan Doyle

Megan Doyle is a business technology writer and researcher whose work focuses on financial services and cross-cultural diversity and inclusion.

 

All Credit Intel content is written by freelance authors and commissioned and paid for by American Express. 

The material made available for you on this website, Credit Intel, is for informational purposes only and is not intended to provide legal, tax or financial advice. If you have questions, please consult your own professional legal, tax and financial advisors.