Everyone who has ever borrowed money or had a credit card of any kind has a credit report. A credit report is a collection of information about your borrowing and repayment habits. It lists the debts that you have, the amount of the monthly payment and the outstanding balance. The most important part of a credit report is the credit rating that you are given. This is the bottom line as far as banks and other borrowing agencies are concerned with when you apply for a loan. If you have missed payments or have been late with payments, it will show up on your credit report. If any action has been taken against you in an attempt to recoup any loans that you didn’t repay, this will have a devastating effect upon your credit rating.
When you apply for a job, your potential employer looks at your resume and makes a decision on the information provided whether he/she will hire you. A credit report works in the same manner. It is a resume of your financial dealings, on which lenders make decisions about whether or not you are a good risk for them to lend money to.
When looking at your credit report, lenders look for information in terms of the following questions:
• How promptly do you pay your bills?
• How many credit cards do you own?
• What is the total amount of credit extended?
• How much do you actually owe on all of your accounts?
If there are negative answers to any of these questions, it may seriously impact your ability to receive a loan or a credit card.
Where Does This Information Come From?
A consumer rating agency (CRA) also called a credit bureau collects information on the borrowing activities of anyone who borrows money. Companies that have granted you credit make regular reports about your accounts to three main CRA’s – Equifax, Experian (formerly called TRW) or Trans Union.
If you are late making your payments, or if you miss a payment, the creditor will inform the CRA of this information. Banks can also inform the CRA if your checking account is overdrawn or if you do not make your payments on your loan for a car, credit card or mortgage on time. If you are delinquent in making child support payments, this information will also show up in your credit report.