Is a credit report like a school report card?

Yes and no. They have some similarities – scores indicative of performance, personal information, etc.  But a credit report isn’t a report in the traditional sense of the word. Each credit report is made up of hundreds, and sometimes thousands, of data points. How that data is presented to you is what makes it feel like a report, but it’s so much more than that.

Thinking of the credit report as data can help a great deal in understanding what it is, what it isn’t, and how it’s used.

What goes into a credit report?

Credit reports contain information about past and current borrowing activity, but can also have information about past residences and employers, and records of when the report was accessed.  You can also find a detailed review in this article.

What is the purpose of credit reporting?

Credit bureaus provide data in a predictable format to lenders. This predictability helps lenders create standardized rules on who they will lend money to. For consumers, this means that the process of applying for credit looks pretty much the same regardless of the lender. This can decrease confusion and remove uncertainty.

This standardization also makes it possible for lenders to use automated systems for making lending decisions which means consumers are less likely to be discriminated against (knowingly or subconsciously).

Finally, more people have access to credit because lenders can better manage the risk of lending.

How do credit bureaus create credit reports?

Most lenders report information about their credit accounts to one or multiple credit bureaus.  These bureaus aggregate and align all of the data received from thousands of lenders and regroup it into profiles of individuals.  They do this by comparing names, social security numbers, and addresses from each account reported by the lenders. 

After gathering the data about each individual into a single file, they format the data in a particular layout that’s known as a credit report.

How can you check your credit report?

There are four easy ways consumers can get a free copy of their credit reports:

1) Under Federal law, credit bureaus are required to provide consumers with at least one free copy their credit report every 12 months. You can do this at AnnualCreditReport.com.

2) Consumers denied credit can request a free copy of the credit report the lender used to evaluate the application.

3) You can also review a copy of your credit report with Experian, Transunion, and Equifax directly by going to their websites. While you’re there, you can review your report for any errors and dispute anything that isn’t correct. Check out this easy to follow guide to help. 

4) Many financial institutions will provide a service where customers may sign up and receive a copy of their credit report.

And at any time, you may pay the credit bureaus to obtain a credit report.