You've come to exactly the right place to learn about credit reports!
A credit report is a documented history of your dealings with financial lenders- nothing more, nothing less. Banks, mortgage providers, mobile phone companies, even power and gas companies- anyone that you arrange a line of credit with can potentially represented on your credit report. In the USA, even landlords have started contributing information on your rental history.
Really? They all share information on me?
Yes. They dont have to, but the more companies that do- the more complete the picture of your credit history. This is good for you, and for the lender. Why? Because in America, we have to build a strong credit score. Like everything here, you gotta earn it.
Should you be worried about all of my information being 'out there'?
No. Credit data is supplied with government authorised Credit Bureaus who collect and compile credit reports on everyone of age. There are only three national credit bureaus in the United States at the time of writing this: Experian, Equifax, and Transunion. These are the ones to care about. These organisations have extraordinary security policies and protocols including everything from bomb proof, retinal access data centres to federal compliance obligations. Your data isn't out there, it's in there and bomb proof. Quite literally. Think a bank crossed with the CIA - and you get the picture. [article continues below]
What about the blacklist?
Strictly speaking, there is no such a thing as a blacklist. However, if you have generally borrowed more than you can afford, have made late payments (or missed payments entirely) there might as well be. But, for most people its not as simple as being on, or not being on a blacklist. The reason for this is nothing is as simple black or white. A blacklist approach suggests that some people are credit worthy, and others aren't. While these two possible conditions exist, the number of people that can't handle any credit at all, is very small. Conversely, the range and scope of people that are 'credit worthy' is vast. Some people can handle $1,000, others £100,000,000.
What are credit reports for?
It's all quite simple really. A credit report is used by a lender to understand what risk you pose, so that they can answer 4 critical questions:
- Should they lend to you?
- How much they should lend?
- What repayment term?
- What interest rate will they charge?
Let's say that again- your credit report helps determine what interest rate you will pay. This is where it all starts to get really interesting for you. The more risk you represent, the more interest you will pay. There is no circumstance where it is better to pay a higher interest rate.
How do they compare me to the thousands of other people that apply?
Your credit report is summarised with a credit score, a number that represents your overall risk profile for the lender. Bigger score = smaller interest rate, and a much greater likelihood of being approved.
How do I get a good credit score?
You have to earn it, plain and simple. How? We have a great article on how to improve your credit score, but for starters always keep three things in mind:
- Pay on time, or better yet pay early
- Never use more than 60% of your available credit limit
- Never-ever-ever miss a payment
Get Access to your own credit report
You also need to eyeball your own full credit report to check for errors, they are far more common than you'd hope. It's not that surprising when you think of it. Each of the three credit bureaus are maintaining a database of many tens of millions of people, many with the same name, or from towns with the same name. Think about a guy called David Johnson from Jacksonville. There must be 1,000 of those alone. It is tricky. When you sign up to a free trial access of your credit report, you get asked to provide a credit card. One of the reasons for this is to double check that you are who you say you are, and that they've go the right David Johnson, so to speak.
Are errors bad?
Always. The way credit reports work is that no news is bad news. Any error that appear will almost certainly have a negative impact on your credit score, which will either get you turned down for credit, or just mean that you pay a higher interest rate. Niether are good.
Sign up here and start cleaning things up!