A credit report is usually the first thing that lenders look through when you apply for a loan or credit card; it’s a very important thing for potential borrowers to consider, though many people don’t fully understand what a credit report is and how they work. A sound credit report could ultimately be the difference between being granted a loan and being refused a loan.
The US has 3 main credit bureaus that deal with credit reports – Equifax, Experian, and TransUnion. These bureaus collect information about your credit and spending from your bank, credit unions, credit card issuers, mortgage lenders, retailers, public court records, and collection agencies. All this information is sorted, organized, and compiled into a credit report by one of these credit bureaus. This digital file is based on your credit history and current spending habits, giving the officials an overarching and all-encompassing view of your spending habits, credit, and debt.
Lenders get access to these reports when you apply for credit, loans, mortgages, or other similar things. These reports are used to assess you as a borrower, and generally ascertain how risky you are to them financially. Risk-averse and sensible spenders are much more likely to have glowing credit reports than people who spend recklessly, sporadically, and rack up debt. Your credit report can change and shift as your information is continually updated and interpreted in the system. The 3 bureaus may interpret your data slightly differently, leading to differing FICO scores from each one. These could be favorable or unfavorable for you, depending on how they interpret said data.
So, what exactly does your credit report entail? Your name, address, and social security number are kept for their records. You should ensure that these personal details are correct in order to avoid identity theft and fraud. Your report also includes public court records on judgments, tax liens, and bankruptcies. Late and unpaid bills (sent to collection agencies) are also reported, as well as “trade lines”. Trade lines are the core of your credit report, and include data about many major financial transactions such as credit card spending, car loans, mortgages, and student loans. Trade lines information is typically updated on a monthly basis, coinciding with the paying of monthly bills. Your credit report also documents any inquiries you make about credit applications.
Over 90% of the United States’ top lenders use the FICO score on your credit report to assess you, so make sure that it paints you in a good light. FICO itself is actually a separate company from the 3 main bureaus. FICO independently interprets the data provided by the credit bureaus and uses it to determine your FICO score, a number which represents your risk to lenders. FICO can receive slightly different information from the 3 different credit bureaus, which is why your FICO score may vary slightly from bureau to bureau. It is worth monitoring your credit reports regularly for accuracy, reflection, and self-assessment.