The Importance of Your Credit Report

Your credit report is a very important compilation of information about you. It lists a number of personal identifiers, such as your Social Security number, your date of birth, current and past addresses, even your current employer. It also reveals present and past loans, credit cards, mortgages and any other reported debts. It discloses the status of those accounts, whether they're up-to-date, overdue, paid in full or in collections. Any public information, such liens, judgments, bankruptcies, even criminal convictions against you, is also recorded. Your credit file will register the severity of your overdue accounts, whether they are 30, 60, 90 or more days past due, or if they were charged off by the lender. Whenever you apply for a loan or other type of credit, your record is ordered and examined by the potential creditor. The report rates your financial status and the creditor uses it to help decide the likelihood of your repaying the borrowed funds.

Your credit score, or rating, is a number between approximately 150 and 900 that summarizes your creditworthiness. The credit reporting agencies use a complex formula which compiles all of the information in your credit file to determine your score, which is used as a "snapshot" of your credit health. The formula takes into account your payment history, the number and age of open credit lines that you have, how long you've had a credit history, the types of credit accounts you have, the total credit that you have available and how much of it you've used, and the number of inquiries there are on your report. Your credit score has a direct impact on your future borrowing ability. A low score may disqualify you out-of-hand from receiving a loan. Or, you may be required to pay a higher rate of interest because your score portrays you as greater risk to the lender.

The items listed in your credit file can have a positive, negative or neutral rating. Items which are negative, such as overdue or charged-off accounts, may remain on your report for seven years. Bankruptcies can continue to be recorded in your file for up to ten years. However, many consumers are not aware of the fact that if you apply for a job that pays $75,000 or more, or apply for credit or life insurance in the amount of $150,000 or more, any negative items on the credit report that's used in conjunction with that job or credit application can be older than the limits listed above.

With the proliferation of identity theft, and the fact that errors in credit files are quite common, it's wise to check your credit report periodically. The simplest way to obtain your report is to order a copy online. It's best to get one from each of the three major credit reporting agencies, since the information contained in their reports of you can vary somewhat. Also, if you've been denied credit, employment, rental housing, or insurance based on your credit report, you have the right to obtain a free report from the agency that supplied the information within sixty days of the denial.

Your credit report shows your entire financial standing on paper. Creditors, employers, insurance companies, and child support agencies can obtain your file. Income notwithstanding, you are judged almost solely on the basis of the information contained in your credit report. It therefore makes sense to ensure that your file contains accurate information, and portrays you in as positive a light as possible.