What is a credit report?
A credit report is like a report card that you get in school. Instead of measuring your knowledge of a subject like history or math, it measures your interactions with credit and debt.
Just as a report card covers multiple subjects, your credit report covers multiple aspects of your credit, such as your payment history and how much you owe. This information is the basis for your credit score, the most important measure of your risk as a borrower.
Your credit score plays a major role in your life. It determines your ability to get a mortgage or car loan and how much interest you pay when borrowing money. It’s in your best interest to know what a credit report is, what’s in it, and how to make sure it’s accurate.
What Is a Credit Report?
A credit report is a document prepared by a credit bureau,usually Experian, Equifax, or TransUnion. It contains information on your interactions with credit and debt. It lists your current and recent installment loan and credit card accounts, describes your history of making payments on your debts, and tallies how much total debt you have.
Potential lenders use your credit report to help decide whether or not you should qualify for a loan or line of credit. Your report offers a comprehensive view of your relationship with credit and gives would-be lenders clues about your trustworthiness as a borrower.
There are many different credit scoring formulas that use the information on your credit report to generate a credit score for you. A higher credit score means you’re more likely to repay your loans, making it easier to qualify for loans with low interest rates.
What Information Is on a Credit Report?
According to FICO, a company behind the most popular credit scoring formulas, your credit report contains four categories of information:
Personally Identifiable Information
This includes things like your:
- Social Security number
- Date of birth
- Other information lenders can use to identify you
This doesn’t impact your credit score but does assure lenders that they’re looking at the right credit report.
This is a list of every credit account that you have with lenders that report to that credit bureau, including things like:
- Credit cards
It also includes the account information of each loan such as when it was opened, the credit limit, account balances, and your payment history.
Each time you apply for a new loan, lenders check a copy of your credit report. This gets added to your credit history and drops your score by a few points.
Public Records and Collections
Any information that is of public record and that could affect your creditworthiness shows up here. For example, bankruptcies, overdue debts sent to collections, and other black marks show up here.
Why Should You Review Your Credit Report?
Reviewing your credit report on a regular basis is an important part of keeping your credit healthy.
Fight Identity Theft
One of the top reasons to keep an eye on your credit is that it can help you fight identity theft. If someone steals your identity and uses it to get a new credit card or loan, those accounts will start showing up on your credit report. If you catch them quickly, that can make it easier to get those accounts closed and removed from your credit history.
Reviewing your credit also helps you catch credit reporting errors. While there’s a lot of personally identifiable information on the report, loan providers and credit reporting agencies sometimes make mistakes.
For example, you might see someone else’s debt show up on your credit report, which can damage your credit score. Keeping an eye on your credit helps you fix these mistakes quickly.
Know How to Improve Your Score
Checking your credit report also gives you a good idea of what negative information your credit report includes and what you can do to give your FICO score a boost. If you know that your overall debt is dragging down your credit score, that can help encourage you to pay off your loans.
You can get a free copy of your report using many free or paid online services. You can also directly ask a credit bureau for a copy.
Know What Loans You Can Get
Finally, if you know your credit score and what’s in your credit report, you can more effectively predict whether you’ll be able to qualify for loans and what interest rates you’ll wind up paying. That makes it easier to reach decisions about things such as whether to try to get a mortgage to buy a home now or wait until your credit improves.
What Are the Credit Bureaus?
Lenders rely on credit bureaus — also known as credit reporting companies — to keep track of people’s credit histories. When you apply for a loan, the lender will usually ask a credit reporting company to give them a copy of your report so it can make a lending decision.
Lenders also give these companies information about your loans so they can build your credit reports.
In the United States, there are three major credit bureaus: Transunion, Equifax, and Experian. All three are regulated by the Federal Trade Commission (FTC), which requires each one to offer one free credit report per year to any consumer that requests it.
Additional FTC rules regulating credit bureaus under the Fair Credit Reporting Act include:
- You must be told if information in your file is used against you
- You have the right to know what’s in your file
- You have the right to ask for your credit score
- You have the right to dispute inaccuracies
- Credit bureaus must correct mistakes or remove inaccurate, incomplete, or unverifiable information
- Credit bureaus may only provide your report to people with a valid need
- You must consent before your report is provided to an employer
- You may request that the credit bureaus limit access to your report for generating prescreened offers for loans or insurance
What Is TransUnion?
Founded in 1968, TransUnion is the smallest of the three major U.S. credit bureaus. It offers services like regular credit reporting and fraud protection to consumers based in the United States.
What Is Equifax?
Founded in 1899 as the Retail Credit Company, Equifax is the oldest of the major credit bureaus. Like TransUnion, it also sells credit-related services, such as fraud protection, to consumers.
Equifax operates internationally across the Americas, Asia, and Europe. It has files on more than 800 million people.
What Is Experian?
Founded in 1996 and headquartered in Dublin, Ireland, Experian is one of the largest credit reporting agencies in the world. It has files on more than 1 billion consumers across 37 countries.
How to Get a Free Credit Report Annually
Many online services let you examine your credit report periodically, view your score, and get alerts when your report or score changes. Some credit card issuers let you view your credit report and score as a cardholder benefit as well.
Under U.S. federal law, you’re entitled to one free credit report from each of the three major credit reporting companies each year.
You can get yours at AnnualCreditReport.com, the official government-authorized website to get your free report. When you go through the request process, you’ll have to provide some basic personal information. The site then directs you to the website of the credit bureau you want to get a report from. You can get your report in digital form or request a paper copy to your home address.
Since you’re entitled to one report from each credit bureau each year, you can get a new free report once every four months if you space out your requests and use all three bureaus.
Frequently Asked Questions
Credit reports are complicated, but understanding how they work is an important part of maintaining your financial health.
What Is a Good Credit Score?
There are many different credit scoring formulas, so it’s hard to give a single answer as to what qualifies as a good credit score.
FICO credit scores range from a low of 300 to a high of 850. A score between 650 and 700 is considered fair. A score between 700 and 750 is considered good. A score between 750 and 800 is considered very good. And a score between 800 and 850 is seen as exceptional.
What Is a Credit Check?
A credit check is what happens when a person or company asks a credit bureau for a copy of your credit report. This gives them an opportunity to examine your credit for late payments or other negative information.
People and companies run credit checks for many different reasons. Common ones include:
- Insurers checking your credit before approving you for a new policy or setting the policy’s terms
- Landlords checking your credit before agreeing to rent you an apartment
- Utility companies checking your credit to determine if they need to collect an advance deposit from you
What Is a Soft Credit Check?
Also known as a soft pull, a soft credit check is an informal credit inquiry that doesn’t show up on your credit report. By contrast, a hard pull on your credit is a more formal request for your credit report and appears on your credit history for two years, dropping your score by a few points.
Examples of situations where a soft credit check occurs include checking your own credit report, a current creditor checking your credit again, or a company checking your credit to see if you are pre-approved for a loan offer.
What Information Is on a Soft Pull Credit Report?
A soft pull credit report includes all of the same information that a credit bureau will receive if it makes a hard pull on your credit.
What Is the Best Way to Check Your Credit Score?
The best way to check your credit score is using AnnualCreditReport.com. It’s the only website authorized by the federal government to help people get copies of their credit histories from the major credit bureaus.
What Is a Credit Freeze?
You can ask any credit bureau to place a freeze on your credit. This limits access to your credit report and prevents anyone from opening new credit accounts in your name.
A credit freeze is helpful if you believe you’re the victim of identity theft because it blocks unauthorized people from using your information to get loans. Freezing your credit is free, and you can remove a credit freeze at any time.
Checking your credit report regularly is one of the most important steps on the path to building good credit. It gives you an opportunity to correct errors on the report and identify the steps that you can take to improve your score.
Having a good credit score can make your financial life much easier. You’ll have less trouble qualifying for loans and pay less interest when you borrow money. Indeed, staying on top of your credit could save you a lot of money in the long run.