What Is the Purpose of a Credit Report?

Few things in life follow you like your credit report does. Understanding the impact your credit report can have on your financial and personal goals begins with a look into the purpose of a credit report. From what goes on your report to who has a legal right to look at your report, consumers should understand the basics of credit reports.

Data Collection

The compilation and tracking of personal, financial and employment information over time represents one of the main purposes of a credit report. Personal information, such as name, address, date of birth and Social Security number, represent some of the personal information that will show up on your credit report. The three major credit bureaus, TransUnion, Equifax and Experian, use your credit report to record information provided to them by your various creditors. This includes your payment history with each creditor and the credit limits or loan amount associated with each creditor.

Credit Purposes

In the eyes of creditors, a credit report represents a tool for examining your ability to pay back a debt. The information on your credit report provides lenders with an insight into how you handled debt in the past and how you might handle it in the future. As a consumer, your credit report can mean the difference between getting approved or denied for a loan. Credit reviews for insurance policies and government benefits represent just a few of the other possible reasons an approved entity would review your credit report.

Employment Purposes

Your credit report also serves a purpose for current and potential future employers when you provide authorization for access to your credit report. While not all employers will use a credit report as a deciding factor, some employers place an emphasis on finding candidates who demonstrate responsibility in their professional and personal lives. In certain industries, specifically banking, real estate and finance, your credit report can help or hurt your chances for getting a job or license. In addition to information about your payment history, your credit report also reflects any potentially negative public records information, such as bankruptcy filings and monetary judgments.

Other Considerations

Overall, your credit report provides detailed information about you and your financial habits. Achieving and maintaining good credit requires work and attention to detail. Fortunately, credit reporting agencies allow information to fall off of your credit report as time goes by. Typically, negative information falls off after seven years, except for bankruptcies, which stay on your report for 10 years, giving you the chance to clean up your credit and get your financial house in order. Checking your credit report regularly for errors can ensure your credit report paints an accurate picture of you and your finances. Each credit bureau allows consumers one free credit report annually, through AnnualCreditReport.com (see Resources), which can help in identifying problems and inaccuracies before applying for credit or seeking new employment.