What is a Credit Report and Why is it Important?
A credit report is an assessment of your credit history (record of credit behavior, current debts, available finances, and returnability etc.). The report assesses these details and assigns a credit score. Your credit score is a reflection of your financial situation and performability in the credit market as a debtor. Based on your credit score, the money-lending agencies will ascertain whether and how much credit are you eligible to receive.
What does a Credit Report look like?
Your credit report is a compilation of all lot of details. The most important and notable information that appears on your report are:
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Personal Information:
The report includes your personal information, such as your name (aliases or any other initials etc. you document), your DOB, your Social Security Number, your address(es) (current and past, if any), contact information of your workplace or employers (current and past, if any).
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Credit Accounts:
The report includes a list of all your credit accounts, your credit card statements, your EMIs on loans, any mortgages, or any other loans that you have raised. Another crucial information considered is your credit limit. The creditors' information is also included within your credit report.
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Credit Repayment History:
The details on your bills, and their payment, including any defaults are also accounted under the credit report. It not only includes your utility bills, but also the expenses you have raised and used credit for. Another mention-worthy information are your credit applications, their number, the amount your have secured as a loan, and if they have been guaranteed for you by someone.
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Public records:
Any relevant details that are under the public domain by law pertaining your financial situations are also included. These include bankruptcies, debt agreements, personal insolvency agreements, court judgments etc.
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Credit report requests:
Lastly, your credit report also includes the requests put in for your credit report! These are generally made my credit providers, and also include the details of the agencies and the time point of their requests etc.
Benefits of a (good) Credit Report
Your credit report, much like your academic report cards from school, is a reflection of your performance and areas requiring extra effort but financially. Therefore, having a good credit report is very helpful when raising some money from the finance market. In addition to assessing your financial abilities, your credit report also provides your potential creditors with an insight into your financial performance to offer you the best. These are very basic but long-lasting benefits:
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Negotiating Power:
Having a good credit report empowers you to negotiate while raising credit. It allows you to grow higher sums at lower interest rates and makes you eligible for other perks that the credit corporation might have to offer. It is all because you are much more financially credible and provide visibly thriving chances of timely repayment.
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Easier Approvals:
Not only does a good credit report allows you to raise high credit, but also quickly. Creditors are confident in your repayment abilities, and you can raise multiple credits simultaneously. Not to mention the lower interest rates it brings alone, already discussed above.
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Easier Rentals and Leases:
A good credit report also raises your value in the house/property lease/rent market. The landlords often rely on credit reports while leasing or renting their property. They play a substantial role in the tenant screening process. It applies to all the residential apartments, commercial places, shops etc. Thus, it is easier to find accommodations when relocating to a new city!
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Avoid Security Deposit:
With an attractive credit report, it becomes easier to avoid any security deposits required for any utility items in the market. Customers with a poor credit report often request to deposit a security amount with the retailer when purchasing in instalments or renting. The same can does not apply to someone with a good credit report.
In addition to all these benefits, personally, a good credit score inspires confidence and makes them feel secure. Whenever needed, they can raise a good credit with fair ease and with additional benefits.
Who all can look at your credit report?
This question is very important from a consumer's viewpoint. It is because there are regulatory measures involved in answer to this question and some agencies that play a crucial role in your credit report.
Firstly, it is worth mentioning that not everyone can see your credit history; it is a personal document that contains some very intimate details. Therefore, it becomes imperative to highlight here that the viewership of your credit report is regulated by the Fair Credit Reporting Act, 1970[1]. It regulates the viewership of the credit reports and the collection, storage, usage, and distribution of consumer information by the credit bureaus and financial agencies and others interested in an individual's credit report. It empowers the consumers with several rights in respect of their credit reports. Before the coming of this legislation, the credit bureaus had the authority over the information they gathered regarding a consumer. The authority was such an expanse that it was a bureau's decision whether or not to share the credit information they have gathered of a consumer with that very consumer!
We will discuss the role of credit bureaus later ahead.Coming to our question: who can view our credit reports, here are those who can:
Lenders: Any creditor, be it a credit card company, an auto-loan company, finance company, mortgage agency, or any other creditor, can ask for your credit report to help them decide on extending any credit to you.
Insurance Companies: When applying for insurance, the companies may also require you to show your credit report. An insurance coverage is also a financial commitment, and they need to be ascertained that you can (and will) pay your premiums.
Landlords: When renting out a place, the landlords may also ask for your credit reports for the same reasons as the two above to ascertain you can afford to pay (the rent/lease).
By now, it is understandable that you can view your credit report above all. It is also worth mentioning that all the people mentioned above can view your credit report only upon your approval. Then, there are, of course, the Credit Bureaus, who make your credit reports.
There is another significant legislation that secures the rights of consumers to raise credit. It allows lenders to evaluate their debtors on their creditworthiness, but their credit-giving decision should only consider the financial parameters. The Equal Credit Opportunity Act prohibits creditors, 1974 to consider the following matters related to a consumer while making or approving a credit: race, colour, national origin, sex/gender, religion, marital status, age (as long as they are eligible to enter into a contract) or their receipt of public assistance for any aspect of lending[2]. This Act applies to all organizations that extend credits to consumers, including any subsidiaries in the decision-making. It covers various forms of credit.
Credit Bureaus
Throughout this article, the term "credit bureaus" has been mentioned quite a few times. Let us look at what they are and their role in the credit reports.
Credit reporting bureaus, or sometimes known as credit reporting agencies, are private companies that deal with the creditworthiness of individuals. They assess your details and your credit history and financial record and attach a report based on the same. There is a credit score then assigned to your creditworthiness. It makes you more or less desirable in the credit market.
As mentioned earlier, they are regulated by the Fair Credit Reporting Act. There are many credit bureaus in the US, but these three are nationally significant:
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- Equifax
- Experian
- TransUnion
All these bureaus use the same information to assess your financial profile, but there are always some differences and delinquencies in the information they have at hand. Therefore, all three usually have different credit scores. Consequently, it is advised that you have a credit report assessed by all three whenever raising a credit.
Conclusion
In the present day and age, credit has become a commodity. The purchasing parity is on the rise, and there is a subsequent inflation rate. It has allowed the credit market to expand in the last few decades. Credit has become more readily available and is being offered at very expansive amounts. But, the factor of credit report and credit score has also come into play. It is your evaluation to be eligible for a credit. It can be compared to an academic report card because it provides a record of your scores to make you eligible for college admission as per their score requirement. Just as an impressive scorecard improves your chances of entering a good college, the same is the case with a credit report; it betters your credit-raising ability.
In conclusion, there are many benefits of having a healthy credit report. There are also many legislations that are very consumer-focused inapplicable to the credit market. There are many agencies employed in this market to assess your creditworthiness. But ultimately, you are, and as should be, the owner of your credit report. Make the best of it!
[1] Understanding the Fair Credit Reporting Act, Credit Education section, Blog posts, Experian. Accessed at: http://www.experian.com/blogs/ask-experian/credit-education/report-basics/fair-credit-reporting-act-fcra/
[2] Julia Kagan, Equal Credit Opportunity Act (ECOA), Investopedia, (October 21, 2021). Accessed at: http://www.investopedia.com/terms/e/ecoa.asp
