A credit report is a potent tool to help lenders decide your creditworthiness, and it outlines your use of credit over time. It is used by many organizations, including credit card issuers, lenders, utility companies, some employers, insurance companies, and mortgage lenders. Because this document contains so much impact on your financial health, it is critical to fully understand what it is and how it works.

The Importance of Credit Reports and Scores

An excellent way to see the importance of credit reports and scores is to consider how they could impact your life. Good or bad, or even nonexistent, these reports influence what lenders know about you and your financial management skills.

• If you want to apply for a job that requires you to work in security or with sensitive information, some employers may check your credit score.
• When you want to buy a home, mortgage lenders look at your credit report to determine how much risk you are to them and then base the interest rate they charge you on the information here.
• When you wish to buy a car, you’ll need a credit history to prove you can make timely payments and sometimes verify your employment.
• Your credit score can help credit card lenders allow you to get low-interest, no-annual-fee credit cards to help you better manage your money.
• Some landlords use this information to determine if they can rent to you based on your ability to make prompt payments.
• Credit report reviews may be necessary when opening some checking and savings accounts.

With so many potential ways to impact your life, it is critical to see the importance of maintaining a high-quality credit history.

What’s Included

What’s on your credit report? It contains a great deal of information about you and your financial history. This includes:

• Your identification. That may include your full name or names you go by, your Social Security number, when you were born, where you’ve lived over time, and where you’ve worked.
• Your current use of credit. The credit report will list your existing loans, including all credit cards, personal loans, mortgages, home equity loans, car loans, or other loans you have. It will include what the loan is, the terms of the agreement, the amount you owe, and whether or not you make payments on time.
• Inquiries about you. Your credit report will also include a list of queries about your loan applications. If you request a loan, credit card, or other offers, there’s a notification of this added to your credit report.
• Your public record. If there is any judgment against you or you’ve filed for bankruptcy, that information is present here. Any liens on your property are likely to be included here, too.

Positive Impacts

There are a number of these things that help you to build up your credit score. Your score is a numerical representation of your credit history. By engaging in positive financial steps, you can increase your score. That’s a good thing, and it means you’re showing lenders you are qualified to manage credit.

Some positive things that can impact your credit report include:

• Opening and using credit. Having a history of credit use can prove vital.
• Making on-time payments for all of your loans. This is one of the most essential components of your credit score.
• Keep your balance on revolving credit as low as possible. That’s the amount of your credit limit you’re using.
• Limit the overall amount of debt you have.
• Using various types of credit, such as secured loans like mortgages and unsecured loans like credit cards.

Negative Impacts

Other things can negatively impact your credit score. That means they will lower your credit score. The lower your score is, the more risk you are to a lender. Some of the most common reasons your score may be lower include the following:

• Not having any credit history. If you don’t have any credit cards or an account for loans, it’s impossible to know if you’re a reasonable risk.
• Making late payments will lower your score.
• Exceeding your balance limit on your credit cards.
• Having more than 30% of your available balance spent on your cards.

Improving Your Credit Reports and Scores

A credit score is a revolving, ever-changing figure, meaning you can take steps today to increase it over time. The best way to do this is with consistently good financial decisions, and here are some ways to do that.

• Create a cash-based budget and ensure you’re living a lifestyle within that budget.
• Work to pay off your loans, including car loans and mortgages, faster than required, paying them off early to save money.
• Borrow money from your credit card lenders when needed, but avoid using your credit cards for all your purchases.
• Set up automatic payments with each of your lenders. That way, you avoid the risk of having a late payment.
• Monitor your credit report for accuracy through the credit reporting agencies. You want to be sure what’s being reported is accurate. Dispute what is not.

These steps can help you build a robust personal credit report and score. That can help you borrow money when needed, often for less.