A credit report pulls together information on how much a person has borrowed in the past and how well he has done paying it back in order to let creditors know how much of a risk they would be taking by lending to him.
Your credit report is compiled to let lenders know your credit history: How much have you borrowed? How have you done paying it back? How many times have you applied for credit? From whom have you sought credit? How much do you currently owe? Are you in default? Have you ever sought bankruptcy protection?
It is one source lenders use to determine, basically, whether lending to you would be a wise decision resulting in full, timely payback. Your credit report lets lenders assess your risk and they might use that to determine what interest rate to charge you (a lower one for lower-risk borrowers, of course). Dings remain on your credit report for seven to 10 years. Potential employers can also check your credit report (yup, it's true).
You actually have three credit reports. The three major nationwide credit bureaus are Equifax, TransUnion, and Experian. The jointly support AnnualCreditReport.com, where you are entitled to request one free copy per year of your credit reports. You have to get one from each bureau because one might have something the others don't, as your creditors might not report an incident to all three. The Federal Trade Commission's Bureau of Consumer Protection also provides information on consumers and credit reports.
There are ways to work to correct mistakes that your credit reports may contain.
If you want your FICO score calculated by Fair Isaac Corp. -- a snapshot number that could be more important than your credit reports because it is easier to understand -- you'll have to pay for that.
The Motley Fool's Credit Center provides tons of information about how to keep on top of your credit activities. This is particularly important as credit has become much harder to get in the wake of the subprime-credit meltdown.
Related Fool Articles
- Anatomy of a Credit Report -- A complete rundown on credit reports from Fool Dayana Yochim.
- How Lenders Keep Score
- Monitor Your Own Credit
- Get It Done: Peek Into Your Secret Files