What Does Your Credit Report Say About You?

It's important for consumers to check their personal credit reports frequently. Credit reports reveal your entire credit history, and lenders use this information as the basis for credit approvals. Based on the contents of your report, lenders, creditors, landlords and sometimes employers develop an opinion about your creditworthiness.

Spending Habits

Credit card companies routinely report updated data, including information about your outstanding balance, to the credit reporting bureaus. The amount you owe makes up 30 percent of your credit score, and potential lenders or creditors checking your report may not approve financing for you if they see high balances. High balances, when considered in connection with your income and credit limits, may indicate spending problems that could lead to default or bankruptcy. Keeping balances low by paying off credit cards each month and paying more than the minimum helps improve creditworthiness.

Payment Pattern

Credit scoring formulas takes your payment record into consideration, and it accounts for 35 percent of your score. Anyone checking your credit report can view information regarding your payment history, which could show a history of late payments, collections or judgments. Not every delinquency is caused by irresponsibility. However, even if you have legitimate reasons for default, lenders and creditors may view a history of late payments as irresponsible behavior. If it becomes apparent that you may have trouble making a payment, talk to your creditor or lender to determine whether you can work out a solution. Creditors may postpone payment for the month or permit a forbearance period in which you aren't required to make payments for a few months. These actions will avoid having negative items on your credit report.

Past Mistakes

Past credit mistakes can lead to a lower credit score. But with improved habits, you can raise a score. Past mistakes do not disappear quickly, and items such as collections, foreclosures, repossession and judgments can stay on your credit file for up to seven years. A bankruptcy stays on a credit report for 10 years. A period of perfect credit activity after a credit mistake can improve your financing opportunities, but creditors may take your past actions into account, which may result in higher interest rates on loans or requiring a co-signer for loan approval.

Credit Report Checks

Consumers who never check their credit report may be surprised when denied a loan or credit card. Credit report mistakes and inaccuracies can harm your score, and the sooner you correct such inaccuracies, the sooner you can improve your score. You can obtain a free copy of your credit report once each year from each of the three credit bureaus -- Experian, TransUnion and Equifax -- through AnnualCreditReport.com. If you detect a mistake on your credit report, you can dispute it with the credit bureau online or by mail, and the credit bureau is required to investigate your claim. If it cannot verify the validity of the disputed item, it must remove the item from your credit report. You also can dispute an inaccurate item directly with the creditor.