We hear a lot about credit reports, but what are they used for?  In short, a credit report is a record of how you have used credit during a certain period of time. Credit is the money you have borrowed or have the potential to borrow from another, most often a bank or lender. The credit report shows who you have borrowed from, the amount borrowed, the type of credit, and your payments toward that credit over a period of time. This information can provide insight into one’s ability to pay debt over time. It can also be a reflection of someone’s character. 

Back to the question at hand, what is it used for? Anytime you borrow money from a bank or lending institution to do things like buy a car or a house, they want to know your likelihood of paying it back. To make that judgement, they will look at your credit report(s). Banks will also look at your credit report when you open an account. Similarly, credit card and mobile phone companies will do the same.

Some employers and landlords will check your credit reports as well. In some cases, you will need to sign a release for the individual or institution to access your credit report. In addition, some insurance companies look at this information. As stated earlier, it is about gauging an individual’s character and history of paying money back. 

There are also a few other entities that may check your credit report. Utility companies may use this information to determine if a deposit is required. Student loans that are held by private companies (not federal student loans) and student loans taken out by parents (PLUS loans) also look at your credit report. Collection agencies will use them when determining your ability to pay balances and government agencies with a legitimate reason can also access your credit information. And finally, anyone with a court order. 

Credit reports provide a great deal of information. It includes four sections — personal information, account information, judgements, and inquiries. Personal information includes names used, addresses, social security number, and birth date. You may find your name listed several different ways to include maiden names or abbreviated names. It may also include multiple addresses you have had, usually tied to an account you opened at some point. Judgements typically only include bankruptcies, as most credit bureaus have moved away from civil judgements. Account information was discussed earlier, but inquiries are also included on a credit report. Inquiries occur when someone requests a copy of your credit report. There are soft inquiries and hard inquiries. We can explain that in another blog, but in the meantime, here is a recent article from Forbes on the subject.   

In closing, let me share a reliable resource for more information. The Consumer Financial Protection Bureau has a wealth of information about Credit Reports and Scores. In addition, if you are a victim of Identity Theft, you can visit IdentityTheft.gov by the Federal Trade Commission.