It probably doesn’t matter whether you’ve ever had a credit card. If you’ve ever taken out a loan or even just paid a utility bill, chances are one of the three major credit reporting agencies (Experian, TransUnion, and Equifax) is tracking your “credit worthiness.”
Why Your Credit Report Is Important
Your credit report and credit score are objective measures of your financial reliability, and therefore carry a lot of weight in many situations. Depending on the current status of your credit accounts and your history of bill and loan payments, you may see your credit report as a trustworthy companion, or perhaps a looming shadow.
If a lender deems your credit to be good, your credit report can help you get approved for a new credit card with favorable terms, or even help you find a job or a new apartment.
But if you have a shaky financial history, the credit or loan application process can seem daunting. Understanding what’s on your credit report and how it translates to 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 divided into four or five main sections1 :
- Personal information includes any name you have used for your account, your date of birth, social security number, and previous addresses.
- 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.
- Debt collection may occur if the borrower has ever referred past due account payments to an outside collection agency.
- Public records list applicable history of bankruptcies, foreclosures, liens, or civil actions.
- Recent Inquiries lists all entities, such as credit card companies or lenders, that have recently inquired about your credit.
Did you know that as an extra security measure and to prevent fraud, American Express reports a reference number – not your actual account number – to the credit bureaus?
How to Get a Free Credit Report
Every 12 months, you are entitled to one free credit report from the three major credit bureaus. You can request your credit report directly from AnnualCreditReport.com, a resource approved by the Federal Trade Commission (FTC). You can spread the three free reports over a 12-month period so you can monitor your credit throughout the year.
It is important to note that this source may not provide your credit score. However, many banks and credit card companies offer free credit scores. Otherwise, you can purchase your credit score from one of the three major credit reporting agencies .
How banks and businesses use your credit report
Lenders, businesses, and other entities can view your credit report and credit score to help determine your financial health. Therefore, building good credit can help you get approved for a loan or credit card, receive a lower interest rate, get approved for a higher credit line, and more.
There are two main types of credit inquiries: “hard” and “soft.” Hard inquiries usually happen when you apply for a loan, mortgage, or credit card. But they often come at a cost. The CFPB notes that hard inquiries can affect your credit score because most scoring algorithms look at how often you apply for credit.
According to the CFPB, soft inquiries provide a basic overview of your credit history and do not affect your credit score. Pre-screened credit card or loan offers often rely on soft inquiries.
Don’t worry, your credit report is not available to anyone. Under the Fair Credit Reporting Act (FCRA), strict laws state that only governments and businesses with legitimate reasons can request access to your credit report .
How your credit report can help you achieve your financial goals
Whether you consider your credit report a friend or a foe, it’s always there to prove your trustworthiness when you’re buying a home or a new car. But credit reports are used for all sorts of other important things, too. Here are some of the less obvious uses of credit reports:
- Getting a job. Prospective employers can review your credit report to determine your reliability and make employment decisions for you.
- Car insurance rates. Car insurance companies can check your credit report to determine your premiums.
- Rent an apartment. A good credit history indicates how likely you are to pay your rent on time — making you a better potential tenant.
- TV, Internet, and Cell Phone Service. Some cable TV, internet, and cell phone providers may check your credit report to determine if you need to pay a deposit before you start using service.
A credit report is a detailed credit history that lenders, businesses, and credit card companies use to assess your financial reliability. Because credit reports measure “reliability,” they are often used in a variety of situations besides applying for a credit card or loan, such as renting an apartment or applying for a job.
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 writers and is commissioned and paid for by American Express.
