What Is a Credit Report and Why Does It Matter?

Your credit report includes all the data and variables that tell banks, lenders, and others how much experience you have with credit. Your report details your previous credit limits, balances, payments, and credit history. 

Learn what a credit report contains, why credit reports are important to your finances, and how to improve your credit.

What is a credit report?

A credit report is a collection of information about how you handle credit and payments. It lists your open accounts, whether you’re making payments on time, and whether there are any marks against you, such as a bankruptcy, lien, or judgment. 

These items are reported by banks, lenders, and other financial institutions you interact with to three credit bureaus: Experian, Equifax, and TransUnion. While your credit report is colloquially referred to as singular, you actually have three credit reports — one from each bureau. Banks aren’t required to report information to every bureau, so there may be some discrepancies between the contents of each. 

What information is included in a credit report?

The exact items in your credit report can vary slightly between credit bureaus, but these major elements will be in each of your credit reports:

Personal identification details

This includes your name, Social Security number, and birthdate. It also includes your current and previous addresses, as well as any names you’ve used previously (such as a maiden name).

Credit accounts and payment history

Your credit report shows your credit accounts, their type (credit card, mortgage, personal loan, etc.), the current balance, credit limit, and credit usage — the percentage of credit you’ve used versus the amount left on your limit.

The report also shows your payment history, noting any late or missing payments. 

Public records and collections

If you have charges that have gone to collections or you’ve settled a debt for less than you owed, those will show up on your credit report. Unpaid child support and alimony may also be displayed, even if you pay off the balance later. The same goes for bankruptcies, which will stay on the report for seven to 10 years, depending on the type.

Inquiries into your credit

When a lender checks your credit report to decide whether to approve you for a loan, that action shows up as a credit inquiry on your report. There are two types of inquiries: hard and soft. 

A soft inquiry is when someone looks at your report, but no credit is issued. Examples of this include:

• Loan pre-approval
• Background check
• Reviewing your own credit report 

These inquiries may appear on your report, but they don’t affect your credit score.

Hard inquiries happen when a lender pulls your report to make a determination on whether to issue you credit. These stay on your report for two years. A single hard credit inquiry may only drop your score by a few points temporarily, but several hard credit checks in a small window can ding it more significantly; it can appear that you’re taking on too much debt to manage your expenses.

How is a credit report used?

Your credit report is used for purposes that extend beyond loans and credit cards. Here are some of the ways your credit report information is used:

• Credit applications: Lenders use the contents of your credit report to evaluate how you handle debt and whether you’re likely to repay new debts. Your credit report (and the credit score generated from it) helps the lender determine whether to loan you money, what interest rate to charge, and how much of a down payment to require.
• Employment considerations: It’s not uncommon for employers to check your credit, particularly if you are seeking employment in an industry that deals with money, sensitive information, or legal matters. If you have substantial dings on your report, this may eliminate you from consideration for these types of jobs.
• Renting property and utility services: Since you accrue a month’s worth of usage before the company requires payment, your utility company and landlord check your credit to make sure you’ll pay your bill.

Why is your credit report important?

Whether or not you’ve ever reviewed your credit report, the information it contains has a profound impact. Here are some of the ways your credit report can influence your finances:

Impact on credit scores

Your credit score weighs all the information in the credit report, including late or on-time payments, credit inquiries, and account balances. A proprietary algorithm calculates a credit score that banks and lenders use to assess your creditworthiness. Certain elements (payment history, amounts owed) have more impact than others (amount of new credit, length of credit history).

Influence on loan approval and interest rates

The better your credit score, the better interest rates and terms you can qualify for on loans and credit cards. Some credit products, like mortgages, have minimum credit score requirements for you to get approved, so it’s important to monitor your credit report to make sure no errors are bringing down your score.

Role in financial opportunities

The effects of your credit report can extend beyond loan interest rates. Some employers, as well as insurance and utility companies, check your credit report. Poor credit may limit your ability to work in some positions (such as a financial planner or prison guard) or make it more difficult to find affordable insurance or get utilities without a security deposit.

How to obtain and review your credit report

Finding out what’s on your credit report is the first step to improving your credit. Here’s how to find out what’s in yours:

Requesting free annual credit reports

Each credit bureau is legally required to provide you with a free copy of your credit report annually. The easiest way to get a copy of reports from all three bureaus is to go to AnnualCreditReport.com and request one.

How to read your report

Each entry in your report is called a tradeline. Tradelines are grouped by type: account information, public records, collections, accounts with adverse information, satisfactory accounts, and credit inquiries. Each tradeline should have the date of the interaction, what institution it was affiliated with, and any other pertinent details. 

Rahkim Sabree, AFC and financial therapist, explains how to read your credit report: “You can read a credit report in sections based upon length of credit history, opened/closed accounts, number and date of credit inquiries (hard and soft pulls), payment history, and the other areas broken up across the report.”

Note that your credit report won’t contain your credit score. As there are a variety of proprietary methods and algorithms used to calculate a credit score (such as FICO and VantageScore models), you may need to pay the issuing institution to know your credit score. Note that certain banks, credit cards, and financial websites give you access to your credit score for free. The free credit score may or may not be the specific model your lender is using, but it will give you an idea of where your credit score stands.

Identifying and disputing errors

If you don’t recognize a tradeline on your report or one is duplicated, you can contest the error with the credit bureau reporting it. Sabree notes, “You should always check your report for inaccurate information, including the spelling of your name, date of birth, previous addresses, accounts opened in your name, inquiries, and payment history. If any information on your credit report is inaccurate or unauthorized, you should file a dispute.”

You can contact the credit reporting agency online, by phone, or via email. Be sure to include the following in your dispute:

• Your contact information
• The credit report number
• Details (account number, issuing institution) about the error you want fixed and an explanation as to why it’s incorrect
• Copies of documents that support your statements, including your credit report with the error(s) highlighted