What is a Credit Report?

Q: I’ve heard that I should check my credit report to ensure my financial wellness. What is a credit report, and how do I read mine?

A: A credit report is an important part of your financial health, so it’s important to understand what you’re looking for when you review it. Here’s everything you need to know about a credit report and how to read one.

What is a credit report?

A credit report is a detailed record of your credit history compiled by credit bureaus. It includes information about your credit accounts, such as loans, credit cards, and mortgages, as well as your payment history, credit limits, and balances. Credit reports are used by lenders, landlords, employers, and others to evaluate your creditworthiness and financial responsibility.

There are three major credit bureaus in the United States: Equifax, Experian, and TransUnion. Each one collects and maintains its version of your credit report.

What’s in my credit report?

Here’s what you’ll find in a credit report:

1. Personal information. This includes your name, Social Security number, date of birth, current and previous addresses, and employment history. This section is used to identify you and does not affect your credit score.

2. Credit accounts. This section lists your current and past credit accounts, including the account type (e.g., mortgage, auto loan, credit card), the date the account was opened, the credit limit or loan amount, the current balance, and your payment history.

3. Credit inquiries. There are two types of inquiries: hard inquiries, which occur when a lender reviews your credit report as part of a credit application, and soft inquiries when you or a company checks your credit for non-lending purposes. Hard inquiries can impact your credit score, while soft inquiries do not.

4. Public records. This includes information on bankruptcies, tax liens, and civil judgments. Public records can significantly impact your credit score and remain on your report for several years.

5. Collections. If you have any accounts that have been sent to collections, they will show up here. Collection accounts indicate that you have defaulted on a debt, which can severely damage your credit score.

Why does my credit report matter?

Your credit report is more than just a summary of your financial history. It’s a tool that can affect many aspects of your life. Here are some reasons why your credit report matters:

• Credit approval. A strong credit report can help you get loans and credit cards with favorable rates and terms.
• Employment opportunities. A poor credit report can impact your job prospects.
• Rental applications. A good credit report can improve your chances of securing a rental property.
• Insurance rates. A better credit report can lead to lower insurance costs.
• Financial health. Regularly reviewing your credit report can help you track your financial health, identify errors or fraudulent activity and take steps to improve your credit score.

How can I access my credit report?

Under the Fair Credit Reporting Act (FCRA), you are entitled to a free credit report from each of the three major credit bureaus once every 12 months. You can request your free reports through AnnualCreditReport.com. 

Here’s how to review your credit report effectively.

First, verify that all personal info is correct. Look for errors in your credit accounts, such as incorrect balances or payment statuses. Next, identify unauthorized accounts. If you spot anything you don’t recognize, it could be a sign of identity theft. Review the list of inquiries to ensure you realize all the entities that have accessed your report. Finally, examine all public records and collections on your credit report. If you’ve resolved a debt, make sure it’s reflected correctly.

How can I improve my credit report?

Maintaining a healthy credit report requires hard work and responsible financial behavior. Here are some tips to improve and maintain your credit report:

• Pay all bills on time. 
• Keep your credit utilization at 30% or less. 
• Limit hard inquiries. 
• Monitor your credit regularly. 
• Build a diverse credit mix. 

You can use this guide to learn what a credit report is, how to read one, and how to improve yours for optimal financial wellness.