If you've ever used or applied for any form of credit, you have a credit report. This report details your activity as a consumer of credit and indicates to potential creditors whether you are a responsible credit user. Credit reports contain a wide variety of information, some of which can damage your chances at obtaining credit. You can obtain a free copy of your credit report once each year through AnnualCreditReport.com.
Credit Report
Companies known as credit reporting agencies assemble information about consumers and include all the relevant data on each person's credit report. The three main credit reporting agencies -- Equifax, Experian and TransUnion -- obtain information in a variety of ways, but commonly use reports provided to them by creditors such as credit card companies, mortgage companies and other lenders. Whenever a creditor reports information to the credit reporting agencies, it gets recorded on your report and affects your credit rating positively or negatively.
Negative Factors
A negative factor is anything that indicates you are unlikely to repay a debt. It includes activity such as paying your bills late, obtaining numerous loans at the same time, going through foreclosure or getting sued by a creditor after defaulting on a loan. Other negative entries on your report include a high credit utilization ratio, which is using a high percentage of your available credit limit on your credit cards. Another negative item is a "hard" inquiry, which occurs when prospective creditors check your credit report when you apply for new credit.
Worst Credit Score Negatives
Negatives on your credit report have varying effects on your credit rating. In general, the longer the item is on your report, the less impact it has. The credit report entries with the greatest negative impact on your credit score involve defaults on a loan or failure to pay back a debt in full. These include charge-offs, bankruptcy, foreclosure, debt collections, judgments and tax liens.
Impact
Your credit report contains credit-related information about you, and companies use this information to create credit scores, a numerical representation of your risk as a borrower. The degree to which negative information impacts your credit score depends on a number of factors, including the company creating the score and your current credit score. For example, Yahoo! Finance reports that going through bankruptcy lowers your credit score by anywhere from 130 to 240 points. In general, the higher your current credit score is, the greater the impact a negative item will have on your score.
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