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But the simple terms don’t quite capture the significance and implications of a credit report. While most credit reports – regardless of the bureau – attempt to offer a clear and legible panorama of your credit history, certain nuances require a bit of effort to appreciate. For example, while there may be minor discrepancies between the three bureaus (each lays claim to its own measurement and calculation processes), each should net out with a very similar credit score.
Your credit score, by the way, is the ever-critical number used to summarize your creditworthiness. You’ll find it in the most prominent space at the top of any report, ranging anywhere between 300 at the lowest and 850 at the highest.
Review your credit reports regularly
Before we even dive into the composition, know that you’ll want to review your credit reports at least once a year. The more face time you get with your credit report, the easier it is to comprehend. The whole point of reviewing your credit reports is to diagnose its trends and correct any potential errors.
Sidebar: mistakes do happen. If you notice something is amiss (e.g. missing an account, balances attributed to the wrong account, etc.), take action immediately. Start by contacting the credit bureau that drafted your report through their online dispute form, which should be readily available on their website. Once you’ve filled it out, the bureau typically has 30-45 days to respond. You may want to consider contacting the affiliated card issuer as well. If the mistake was a clerical error on their end, you may be able to remedy the mistake faster with their help.
Use every resource available
The three main reporting agencies are required by law to offer one free credit report every 365 days, and most register as soft inquiries which won’t influence your credit score (as opposed to the hard inquiries that will — more on those later). That said, there are plenty of websites and services (including our own) that offer free credit reports more frequently than that.
After a few go-rounds with your credit reports, you’ll see that improving and maintaining their health is actually pretty simple:
Make your payments on time and in full
Pay off your debt instead of shuffling it between accounts
Don’t open several credit cards in quick succession
What makes up your credit report?
Most free credit reports are organized via four categories:
1. Identifying information
This is your personal information that distinguishes your account from others. Your name (or names, if you recently filed a name change or legally go by more than one), social security number, current addresses, date of birth, telephone number and more should be included. While it’s easy to overlook, give this section a once-over every time you review your credit report. Make sure the agencies have the correction information and that the report really is yours.
2. Credit history
This portion of your credit report is generally the largest and the most essential. Your credit history is a line-by-line review of all your accounts, present and former. You’ll see a few basic items with each: the name of the creditor, account activity, account number and date of opening. You might also see things like your credit limit, minimum monthly payment and your balance at the time of the credit report. That goes for credit card accounts, personal loans, car loans, mortgages and any account you’ve used to borrow money over the years.
3. Public records
Your public records list negative information regarding your creditworthiness. Think bankruptcies, court judgments and outstanding liens (claims on physical property that in select cases will outlast a foreclosure). These items can stay on your credit report and affect your creditworthiness for up to seven years, so avoiding any negative marks on your record is paramount. This section will not, however, include any arrests, lawsuits or unaffiliated infractions with the law.
Anytime your credit report is pulled, an inquiry is added to your credit report. This isn’t a necessarily bad thing, and how it affects your credit depends on the frequency and type: hard inquiry or soft inquiry. Hard inquiries occur when a potential lender reviews your credit as it pertains to immediate borrowing, while soft inquiries occur in instances of more commonplace due diligence. Soft inquiries have no effect on your credit score and depending on the reporting bureau, may or may not appear on the credit report. Hard inquiries will always be listed and may temporarily drop your score by up to five points.
Why does my credit report matter?
As a once and future borrower, your credit report means everything. It’s the basis for your credit score, the shorthand that nearly every potential lender uses to gauge their decision to do business with you.
Generally, a credit score of 650 or above will keep you free and clear of stumbling blocks in securing a loan, leasing a car or applying for a new credit card. But there are plenty of other instances in which a lagging credit score could hinder your personal or professional life:
Many mobile phone providers run background checks (which include credit checks) to evaluate customers
Landlords may inquire about credit scores to determine security deposits or a tenant’s potential to pay rent on time
Insurance companies may assess credit scores to set a customer’s monthly premium and measure their likelihood to file a claim
Knowing your credit report intimately will help you maintain a healthy credit score. When you understand the factors that are considered in your report, you can make more informed decisions about your spending and behavior as a borrower.