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Overview
When creditors want to asset your worthiness for any line of credit, or a landlord wants to gauge how you handle your money, they will look at your credit report. The credit report is like a money report card--and your grade here will judge how much credit you will get.
Significance
A credit report plays a crucial role in the financial life of all of us. The report itself is a seven-year (in the United States) history of our past dealings with creditors, both good and bad. Good credit will yield a higher "credit score," which a formula that is used to judge credit worthiness on a scale of 300 to 850. Negative reports, such as late payments, will cause that score to go down.
Types
There is only one standard credit report in the United States, however there are three companies that keep their own records of consumer credit. TransUnion, Equifax and Experian all offer their services to those looking for credit histories on consumers. While the method of reporting is the same, the way they calculate the credit score varies from company to company.
Function
A credit report serves as a guide to potential creditors in judging who is worthy of lending money to. While not always true, those with a better credit report typically are lower risk to lend to, while those with more negative marks have a higher probability of defaulting on a debt. It has also become commonplace for landlords to review the credit reports of tenants before allowing them to sign a lease.
Features
A credit report typically has three sections. The first lists all personal information of the individual, including name, current and previous addresses, Social Security number, date of birth, and any available employment information. The second section deals with current and recent lines of credit (up to seven years in the past). Finally, the last section lists any adverse information, including collection and charged off accounts.
Effects
The effects of your credit report can be far reaching. With good credit, just about any lender will likely lend to you without much question. Bad credit will bring with it a great deal of difficulty in obtaining credit. This can even last up to seven years--the period of time credit information can stay on a credit report--even if you have paid off the bad accounts in full.
Considerations
In the United States, under current laws an individual is allowed to request one free credit report from each of the three major credit bureaus every 12 months. The report should be checked frequently to catch any suspicious activity or mistakes that could harm your credit.
