Credit reports play a significant role in the financial standing of most U.S. residents. Most obligations you have relating to money impact your credit report. For example, any time you apply for a loan to help with a large purchase, you must go through a credit check. While credit reports can help you financially, certain confusing aspects of these reports may affect you negatively. For instance, you may not understand the difference between a credit score and a credit report. You may also not understand how your information is gathered.

Another issue relating to these reports is accessibility. One common misconception is that checking your credit report often may negatively impact your credit score. Moreover, the fact that your personal information is accessible in a report may worry you. To alleviate your concerns, you must understand what a credit report actually is and how it works. The information below can help you understand how they are compiled and how your personal information displayed on the report is protected.

Find Out What Your Credit Report Actually Is

Before you can understand what your credit report actually is, you must understand what credit history is. Your credit history displays all of your recent debts and the payments you made on those owed amounts. For example, if you obtain a mortgage for a home, the mortgage and the payments you make on it become part of your credit history. Similarly, credit card debts, car loans and any other monetary obligations add to your credit history.

Your credit report is a report listing your credit history and other related data. If you have a poor credit history, such as failure to pay debts on time, it typically stays on your report for seven years. In addition, a bankruptcy filing stays on your report for up to 10 years. Such information makes you look like a high-risk borrower to financial institutions. Therefore, it is more difficult to apply for loans or perform certain other actions when you have these negative marks on your credit report. General data listed on your credit report typically includes:

  • Full name, address and date of birth.
  • Social Security Number (SSN).
  • Employment information.
  • The total amount of current debts.
  • Public records relating to your finances, such as property tax liens or court judgments.
  • A list of individuals or organizations who request your credit report (“soft” or “hard” inquiries).

The Relationship Between Your Credit Report and Credit Score

You must understand the relationship between your credit report and your credit score in order to fully grasp how the report impacts you financially. A credit score is a numerical value based on the total assessment of your credit report. It considers your credit history and provides you with a rating to help financial institutions determine how good or how bad your credit is for lending purposes. Overall, a credit score of 800 or more is considered very high and indicates that you have excellent credit. However, on average, a credit score between 600 and 700 is considered good. Furthermore, a credit score within the 500 range is considered low.

Knowing your exact credit score at all times is impossible and unnecessary. However, it is important to have a sense of the overall status of your credit score. Generally, your credit score and report are used by lenders when calculating your eligibility for loans. If you know your credit history needs improvement, you can benefit from finding ways to improve it before applying for any loans. By doing so, you can work toward having a higher credit score when borrowing funds from a financial institution.

Find Out What Credit Report Compilations Are

Credit reports are compiled over time. The companies responsible for compiling reports are called credit bureaus. Furthermore, the Fair Isaac Corporation (FICO) is the institution responsible for establishing credit scores based on data gathered. The three major credit bureaus in the U.S. are:

  • Experian.
  • Equifax.
  • TransUnion.

Formerly known as Fair, Isaac and Company, the Fair Isaac Corporation is responsible for determining what are known as “FICO scores,” which are used by various financial institutions as a standard for credit scores. On the other hand, the three major U.S. credit bureaus also use their own formulas to determine a credit score. For example, Experian credit scores range from 300 to 850. Alternatively, Equifax scores range from 280 to 850. These differing calculations often cause potential lenders to look at all of your reports from the three major credit bureaus, as well as your “FICO score,” to gain a clearer picture of your credit history. On the other hand, certain lenders may base their decisions strictly on your credit score determined by FICO. Thus, it is important to make sure that your “FICO score” is as high as possible.

Learn About Credit Report Checks

Credit report checks consist of hard and soft inquiries. A soft inquiry does not affect your credit score at all and has no negative impact on your report. An example of a soft inquiry is checking your own credit report. Moreover, credit card issuers may periodically perform soft inquiries on their clients, which will not affect their credit scores in any significant way.

On the other hand, a hard inquiry is one that negatively impacts your report. However, it may not impact your score as much as you may think. For example, when you are in the process of purchasing a home, you have to undergo several credit checks from different lenders. Typically, these checks are bundled together and count as only one hard inquiry if they occur within a set period of time.

You may also wonder who is able to legally perform soft or hard inquiries on your report. The information displayed on your report includes personal data you may not wish to divulge to the general public. However, the general public is not allowed to view your personal report. There is a limited group of individuals and organizations that are allowed to do so legally, such as:

  • You.
  • Your current lenders.
  • Lenders you are attempting to do business with.
  • Utility companies.
  • Insurance companies.
  • Your employer or potential employer, but only if you have granted permission.
  • Certain companies with which you do business, such as your bank or your landlord.