The first question that might run across your mind at this point is—what’s a credit report? A credit report is a document containing your personal information, credit account history, credit inquiries, and public records. It’s made by various credit bureaus and is used to calculate your credit score. A credit score is a 3-digit number that designates your degree of risk to lenders, banks, and other financial institutions. This risk refers to your ability to pay your credit. The higher the number, the lesser the risk you become to them; and the more likely you to get the loan you’re applying for at your desired interest rate. The lower the number, the less likely that they would give you the loan you ask for. They might be imposing higher fees, interest rates, and more stringent terms.
A credit report contains 4 types of essential information. The first is personally identifiable information (PII) such as your name, address, Social Security Number, date of birth, as well as your employment information. This doesn’t have a bearing on your credit score, and you can update the bureau for any changes. Here, it’s important that you make sure that your personal information is correct. Pay special attention to the spelling and the dates.
Your credit report also contains credit accounts, which layout each account you’ve established with lenders, banks, and other financial institutions. The information contained here includes all of the credit cards, auto loans, mortgages, and others; as well as the dates, the credit card limits, loan amounts, account balance as well as payment history. This makes up the bulk of your credit report. This underscores how important the information in your credit accounts is.
What you need to pay attention to at this point is the list of accounts you’ve accumulated. Those in good standing refer to the accounts you were able to pay on time. Those include the terms that you’ve successfully complied with, as well. On the other hand, negative accounts display overdue loans or those containing terms that you’ve violated or failed to comply with. You want to verify that this information matches your records. So, check the following:
- Account name
- Account number
- Date Opened
- Payment status
- Payment history
The credit report also contains credit inquiries. Essentially, these are requests for copies of your credit report made by lenders, banks, and other financial institutions from which you’ve applied for a loan or credit. This portion contains the entities that have asked to gain access to your credit report. Here, you want to look for unfamiliar and suspicious institutions that have asked to gain access to your credit report and then ask the bureaus for insights as to how to deal with this situation.
Finally, you have public records and collections. This contains relevant information from the state and the county courts such as bankruptcies and overdue debt. Some of this information can remain there for a number of years, and it can affect your credit score. So you want to verify that the information contained in this portion is correct and accurate.
Now that you’ve been acquainted with what a credit report is, you need to understand why it’s essential that you read and study it from time to time. Perhaps the first thing is because you want to monitor your credit score as a relevant aspect of your financial status. You can review your credit report for free, and this will give you insights as to your finances for which you can prepare accordingly. Doing so will allow you to gain perspective as to your credit score, and you can spot problems before they explode. This will help you maintain and improve your credit score.
Reviewing and studying your credit report can also give you the opportunity to identify incorrect or inaccurate information. You can then communicate to the relevant credit bureaus for their immediate correction. You can even dispute them.
In cases where you apply for loans, mortgage; or you plan to buy a new car—one of the steps you need to do is prepare relevant documents for the application. One of those is your credit report. This underscores the importance of reviewing it to verify that the information contained therein is true and correct to your own personal knowledge. This way, you’re so familiar with your credit report already that you don’t need to give access to the lender, bank, or other financial institutions you’re dealing with because you can tell them all relevant information on site. Otherwise, it might trigger an unnecessary inquiry. The information contained in your credit report is important, As such, you should consider limiting access to it.
What if your application was denied? You can go back to your credit report because this will likely give you an idea of understanding why. You have the right to a free copy of the credit report referred to by the lender, bank, or other financial institution you applied from.
You can also identify tell-tale signs of identity theft by taking note of unfamiliar names, Social Security Numbers, and accounts—information that does not pertain nor belong to you. By informing and explaining to the credit bureaus, you can stop and prevent further misuse of your identity.
Make checking and reviewing your credit report a habit to help you manage your finances. This will help you organize and prioritize so you can maintain and improve your credit score and financial freedom.