What is a Credit Report and Why is it Important?

What is a Credit Report and Why is it Important? – For anyone who has just started off using a credit card for the first time,you need to know that there has also been a report created for you that will store information regarding all your credit card payments.In future if you take out a car loan or mortgage,that information will also get recorded in the credit report.

It is one of the most important pieces of information regrading your financial life and will be used by creditors to gauge your repayment capability,payment history and to check for any discrepancies,write offs,liens or other points that ,may negatively compromise lending you money.

 

What do credit reports contain

It contains the recent history of all your money matters and important transactions including payments and some personal information about you,just like your social security number does.It can be said that this is a financial equivalent of your SSN.

This report can be accessed by financial institutions that either want to lend you money or higher government authorities doing a background check on you.

All important information regarding the debt you have so far,how much you managed to pay off,your credit information,insurance,mortgages,tax liens,bankruptcy,financial fraud,auto insurance,repossession of your vehicle and more.

There is little you can hide especially the bad parts like late payments,missed payments and charge offs,if any.

 

Process of credit reporting

Ever small detail regarding your credit and debt is stored in your credit report,but how does it get there?All aspects of your payments,the good and the bad,the late and the timely,all get reported by the respective card issuers,banks,financial institutions and insurance companies directly to the credit bureaus.

When i worked in collections,and spoke to delinquent customers who were hesitant to make payments. I would often issue a soft threat that if they did not comply,i would be forced to report them to the credit bureaus.

The three main Credit Bureaus in the US are Experian,TransUnion and Equifax. These three credit bureaus store all your credit reports and as per request, allow access to certain companies.All bad debts,late payments,missed payments,and other payment defaulters are to be reported to them.They in-turn update the credit reports every month.Minor financial deficiencies will be weeded out from the credit report after a few months,but serious lapses like bankruptcy,fraud,write offs and liens will stay forever.

 

How does a credit report affect you

Since it carries all your personal data and complete banking information,it is the only tool that companies can use to check your financial status.If a credit car issuer wants to do a background check or credit check {also known as a credit inquiry} before issuing you a new card or a loan provider is giving you a new loan for a house or car,they will want to not only verify your information,but will also look into your history of past payments.

If your past history shows sketchy details,or if you have bad debts,or were unable to honor checks,or were always late in making bill payments,that will certainly reflect badly and the company that is reviewing your information might not provide the loan or card to you based on our credit score.

Why is it important

This credit score that can be as high as the eight hundreds and as low as in the hundreds,is the best indicator to your financial standing currently.Businesses that need to know your financial status do not even need to go in-depth into your credit report,they can gauge a lot by simply looking at your score.

This is why it is important to always make credit card payments on time,never miss payments and try to make more than the minimum due every month.These small things go a long way.

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