When applying for a loan for a car or a home, the lender doesn’t ask you for your high school transcript. They don’t care what kind of grades you received in high school or college. What lenders want to know is if you know how to handle your money. They need to make sure that you will pay back your loan on time, and won’t default on it. So before handing you the money you need, the lender will get a copy of your credit report from a credit reporting agency.
Information That’s in Your Credit Report
- Personal Information – Your credit report shows your name, nicknames, current and previous addresses, how long you stayed at each address, birth date, telephone number, and social security number.
- Employment Information – Your credit report also contains a list of your current and previous employers.
- Credit History – In your credit report, there’s a list of all the accounts you have on credit. For each account that’s listed, the following items are shown: The day that account was opened, the amount of the loan, what your monthly payments were, the status of the account (closed, paid-off, etc.), and if you made any late payments.
- Dispute Reports – If you have ever disputed a claim against a lender, it will show up on your credit report.
- Report Inquires – A list of companies that have accessed your credit report shows up on your credit report.
Credit Reports can be several pages long. To make it easier to get an overall judgment of your credit report, a credit score is shown. Your credit score is determined based upon your credit history. If you have a poor credit history, you’ll have a low credit score. If you have a great credit history, you’ll have a high credit score. The lowest obtainable credit score is 300, and the highest is 850. A credit score is calculated by using the information in your credit history. It is mainly based upon how well you are able to pay your bills on time, how much debt you have, and how long your credit history is. The more credit card debt you have, the worse it can be for your credit score.
So, when lenders need to make a quick decision, they’ll take a look at your financial report card (your credit report), and then decide accordingly based upon your credit score. If you do have a low credit score, a lender may still give you a loan but you would just have to pay a much higher interest rate. People with low credit scores have higher interest rates on their loans, and people with high credit scores have lower interest rates on their loans. If you have bad credit (a credit score of 300-500), the easiest way to repair your credit is to pay your bills on time, and pay off your credit cards. That’s the easiest way because those to factors make up a big portion of your credit score.