Understanding how the credit reporting bureaus compile your credit score (using either a FICO or Vantage Score model) is crucial. Yet you also need to understand the credit report that underlies the all important credit score. In this chapter, we will consider all of the various components of this personal credit report and how to effectively manage it to your best financial advantage.
It could make the difference between approval and disapproval on your next loan or credit card request.
Credit reports are statements that contain detailed information on your various credit activities and current credit status. This includes the present condition of your credit card accounts and your history of paying loans and bills.
The vast majority of consumers possess more than a single credit report. In fact you generally have three credit reports compiled by the major reporting bureaus Experian, Equifax, and TransUnion. These consumer reporting agencies (credit bureaus) gather and store all sorts of financial information on you that creditors submit to them.
This comes from credit card companies, lenders, and other financial firms. Interestingly, creditors do not have to submit their data to all of the credit reporting bureaus or any of them if they so choose. Most send it to at least one of them though.
These reports are crucial because lenders employ them as a means to determine if they will extend credit or a loan to you and at what interest rate. Lenders similarly utilize your credit reports to decide if you still meet their terms for an already existing credit account.
Still other companies could use your credit reports to decide whether or not to provide you with insurance (and at what premium), if they will rent an apartment or house to you, and at what deposit they will provide you with utilities, Internet, cable television, or cell phone plans. Even employers often will review your credit report in considering you for a potential job (in around half of all cases).
They can utilize your report as a deciding factor in whether or not to hire you over a competitor.