What are the contents of a credit report, and why is it so important?
History is in the making ever since you availed the first debt and it keeps on building as you take new debts whether it is for buying a home, a car, pursuing higher studies, credit card loans or for any other reason. Also, once you have a credit history, you have a credit score too, which is a compilation of the credit history that captures your behavior in managing credits. Credit reporting companies like Equifax, Experian, and TransUnion are continually compiling the credit transactions of individuals and then translating it into elaborate credit report that contains every detail of their financial activities concerning handling credits. Credit reports are so detailed that it can run into even 100 pages.
As living on debts has become a way of life, credit scores have acquired immense importance in modern living. Credit score affects everyone today, and it is essential to gain knowledge about its various aspects to facilitate a better life. Similarly, you must be familiar with credit reports that any lender will call for when you approach them for a loan. Here, in this article, you will find detailed information about credit reports that should help in understanding it.
What to find in a credit report
Lenders are keen to know the details about the borrower by understanding their credit profile, which includes details of all credits together with payments made that reveals their behavior in managing credits. The number of times credits taken, whether payments were on time or there had been delays and the number of times the borrower defaulted, everything comes clear from the report. It shows how the borrower deals with credits that show how dependable the person could be from a lending perspective. Moreover, it matters most to lenders who use the credit score and credit report to do a detailed risk analysis about the borrower.
Also, the report contains other details like whether the person had filed for bankruptcy or faced a lawsuit judgment. By analyzing every piece of information is possible to determine the risk level of the person as a borrower.
Source of information for credit reports
Credit reporting agencies or credit bureaus like Equifax, Experian, and TransUnion are the custodians of all information of individuals as stated above. Companies from whom you avail debts pass on all information about your account to the credit bureaus. To ensure that the information contained in the reports are accurate and remain confidential, FTC or Federal Trade Commission, which is the consumer protection agency of the US has introduced the Fair Credit Reporting Act (FCRA) to protect the interests of consumers. The monitoring of the credit bureaus ensures that the credit reports are entirely reliable.
The credit score tells all
Since it takes time to analyze credit reports and the reports of different agencies contain different kinds of information, it would be a time-consuming affair to determine the reliability of a person or their creditworthiness. To make things easier and take a consistent approach in analyzing the various pieces of information contained in the reports very quickly, the company Fair and Isaac Corporation introduced a scoring system based on the information of individuals which everyone knows as FICO score. The score computed on a scale of 300-750 denotes the grading of consumer that point to the risk level. Lower is the score higher is the risk level and vice versa.
Therefore, any lending company would call for your FICO score first to understand your basic eligibility for a loan and then look into the credit reports to ascertain specific risks to determine the rate of interest that helps to cover the risk as much as possible.
Type of information found in credit reports
Information related to your identities, like name, address, and employment details are the most basic information contained in credit reports. Check for correctness of all, including spellings because there might be some inadvertent errors, and sometimes it can be an indication of identity theft. Therefore, you must report errors and arrange for its correction promptly.
All detailed information about your credit cards and loans find a place in the report like your credit card account type, credit limit, balances, account status, and payment history. For loan accounts, all information like original loan amount, loan balances, and payment history everything finds mention in the credit report.
Credit reports also include the inquiries meaning a list of businesses that have recently probed your credit history either for promotional screening or for processing an application for a loan that you had made. The borrower's version of the report will include all inquiries made by businesses that pulled your report.
Ask for a credit report
You are entitled to ask for a free credit report once a year by logging on to the central website annualcreditreport.com of the credit rating agencies or request for it on their mailing address or place a request over the toll-free telephone number. You can ask for your report from the three credit bureaus at the same time or at different times but only once in 12 months. If you are placing your order on the website, be careful to stay away from spam websites. The service is completely free and under no circomestances should you pay for it in any form because some websites dupe people by luring with a free offer only to make them pay after free trials.
Information to provide for obtaining a credit report
You must provide your name, address, date of birth, and social security number to get the free report. Since the address update happens at an interval of two years, in case you have moved in two years, you must give the previous address. As part of the verification process, the credit rating agency may ask you for some specific personal information that you only know like your monthly mortgage payment. However, the question can vary between companies.
Whether to use the credit score only or ask for the credit report too is the discretion of the companies.