What is a Credit Report?

A credit report is a report detailing a person's financial history specifically related to their ability to repay borrowed money.

How Does a Credit Report Work?

There are three major credit bureaus in the United States: TransUnion, Experian and Equifax. Each keeps a database of financial information about borrowers, including the names of all their creditors (past and present), the dates when their accounts opened and closed, whether the account is a joint account, the balance and credit limit on each account, and the number and dates of late payments.

Related information is also including such as previous names, address history, birth date, phone numbers, social security number, marital status, any legal judgments, child support owed, arrests, indictments, convictions, etc. Not just anyone can view someone's credit report -- it is only available to those with a legally permissible purpose.

Information on credit reports are used to determine a person's credit score. The credit score (or FICO score) in turn reflects a person's credit risk -- that is, whether he or she is a trustworthy borrower. The more prompt and responsible a person is financially, the higher his or her FICO score will be.

In general, negative information (such as late payments or tax liens) remains on a credit report for seven years. Bankruptcies stay on the report for 10 years.

By law, credit bureaus must send you one copy (at your request) of your credit report each year. Additionally, if you have been denied a credit card because of information on your credit report, you may receive another free copy within 60 days of the denial. In most other circumstances, you usually have to pay the credit bureau for a copy of your credit report.

Why Does a Credit Report Matter?

Your credit report and the creditworthiness it reflects tells banks, credit card companies, retail stores, utilities, landlords, and even employers whether you are a financially responsible person. Bad credit causes people to be denied for loans, pay higher interest rates on loans, and have trouble in even the most minor areas of life, such as renting a video, getting utilities turned on or renting a car. Character and collateral also influence a person's creditworthiness, but the credit report often outweighs these attributes.

It is important to note that credit reports often contain errors, so a consistent periodic look at your credit report can be very helpful. This also goes a long way toward preventing identity theft, because any accounts opened in your name will appear there. You have the right to contest incorrect information in your credit report, and credit bureaus by law must provide toll-free phone numbers, live customer-service representatives, and an expeditious investigation process.