Understand Credit Reports And How They Work

Online, October 24, 2011 (Newswire.com) - There are still people who just don't understand how their credit reports work, and how what's included in this document can affect their lives.

So what exactly is a credit report?

Your credit report is a document that bears information about how you pay your bills and repay loans, how much credit you have available, and what your debts are. It's basically your credit history, starting with Day 1. But the report doesn't stamp you a good or bad credit risk - this is up to the lenders to determine.

The information on your credit report includes your personal identifying information, your credit history, public records, report inquiries, and dispute settlements. Each of the three credit reporting bureaus has its own criteria for determining what your report reflects, so it's best to review all three reports each year.

What won't appear on your credit report are your bank account balance, race, religion health, criminal records, income, and driving record.

It's important to note that your credit report and your credit score are separate entities. Credit scores are based on information from your credit report, but are not a part of your report.

When a potential creditor looks at your credit report, he is looking for certain information, like how many inquiries to your report there are. A lot of inquiries may be, for the lender, a red flag that indicates you need a lot of credit or are trying to take on a large debt.

Creditors also look for missed payments, maxed out credit lines, and your debt in relation to your income. These things indicate to a creditor whether you can and will repay the loan you are requesting.

It's important that you review your credit report once a year, to be sure there are no fraudulent or incorrect entries, and to make sure your credit is good and improving. If you find an error, you'll need to contact the creditor immediately, in writing, to inquire about the error and/or request that it be removed.