Money — 1 week ago

How Does a Credit Report Work? What Does It Take into Account?

by Alvin V.

Credit Report, How Does a Credit Report Work

How Are Credit Reports Produced

If you had to take a loan to purchase a car or a house or get a credit card, you would have come across the term credit report. Lenders all over the world use this as the basis for determining whether you are trustworthy enough to receive a line of credit.

You are keen on knowing how the credit report system works, as it has such a huge impact on your life. After all, you don’t want to have a poor score, which makes it harder to take a line of credit in the future.

What is a Credit Report?

First, you must understand what is a credit report, before knowing about how it works. It is a collection of all the lines of credit you have taken in your lifetime. Here you will find information about how often you repay your loans, the number of active lines of credit, and monthly debts.

To make it as short as possible, it has all the data a lender needs, to determine whether you will repay them after taking credit. Keep in mind that this doesn’t state whether you are good or bad when it comes to making the monthly payments.

Also, there is a huge difference between a credit report and a credit score. The latter condenses all the information in your report into three digits. Lenders use this to determine whether you are creditworthy.

Credit Report

Who Creates the Credit Report?

Credit bureaus are the ones who will be maintaining your credit report. These organizations will keep in touch with all the landlords, lenders, and merchants to collect adequate information.

What Does Your Credit Report Take into Account?

Your credit report will have the following information.

Credit History

One area where every lender will look into, before giving you a loan is credit history. It is all the information related to paying your bills, such as mortgage companies, finance firms, banks, and other organizations, which give you a line of credit.

It goes into detail, talking about the amount taken, how much you repaid, date of taking the loan, and type of account. If you finished paying off a certain loan, it will appear in the credit history.

How Does a Credit Report Work

Dispute Statements

If you discovered that certain data in your credit report is inaccurate, you can dispute it with the credit bureaus. The creditor and you will be able to make statements regarding this subject, which will appear in the report.

Report Inquiries

Every time a lender wants to take a look at your credit report, it will come under-report inquiries. You will get to know about all the companies that needed this information before giving you a line of credit. A lot of organizations use this data to find out if you are eligible for their pre-approval offers.

Personal Information

The purpose of the credit report is to make it easier for the lender to identify whether you are the person who approached them. As a result, it contains personal information, such as telephone number, previous and current address, name, date of birth, and employers.

Public Records

Another important area of focus among lenders is the public records, which is an indicator of your ability to repay the loans. In this category, you will find details about bankruptcies, court judgments, and tax liens.

There are two types of credit reports, which depend on who is requesting it. As a consumer, you will receive all the above details in this document. For businesses who wish to give you credit will get the same information, only when you approach them, which gives them permission to take a look at your record.


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