What is a Credit Report?

A credit report is actually a credit history. The report contains details from many financial data sources. The information contained in a credit report includes details such as: who you owe money to (utilities, hospitals, landlords and others), if you are late in making payments, your bank if you overdraw your account or do not make credit card, auto loan, or mortgage payments on time. Your credit report may also contain information about delinquent child support payments.

A credit report also lists personal information such as: your name, your address, most recent previous addresses, telephone numbers (even if they are unlisted), your Social Security number, when you where born, and data about your employment history. Your credit report also contains issues of public record such as bankruptcies, tax liens, and civil judgments.

Today the credit reporting industry is controlled by three large national credit bureaus: Equifax®, Experian®, and TransUnion. The bureaus run about 1.3 billion credit reports each year, and each of the three has around 225 million consumer credit files in its records.

Additionally, the report includes a credit rating, or your FICO score, which range from around 300 to 850. In the US, the median FICO score is about 725. FICO scores above 720 are deemed a "good credit" rating, while every FICO score under 600 is considered to be a poor rating.

Why Is A Credit Report Important?

Your credit report is fundamental as most financial decisions in your life will use the info in your report to some degree. At the most basic level it will be used to determine if you will be granted credit, to a lesser degree it may be used to determine the rate you pay for mortgages, loans and even insurance.

As an example of how your credit rating can impact you consider a mortgage of $216,000 amortized over 30 years. Assuming you have the minimum FICO score (620 to 639) to qualify for the mortgage you would pay 8.13% or $1605 monthly, however if you had the top FICO score (760 to 850) you would pay 6.54% or $1371 monthly. This equates to a $234 savings a month, or $84,240 over the lifespan of the mortgage.

How Can I Improve My Credit Rating?

While there are minor differences between how your FICO score is calculated the standard formula is:

35% on your payment history.
30% on the amount you owe.
15% on the duration you've had a credit history.
10% on the amount of new types of credit you've asked for.
10% on the types of credit used.

Now you know that to improve your FICO score you have to pay your bills in a timely fashion, lower the total amount of debt you have, limit your requests for new credit and steer clear of high-risk credit.

What Else Can I Do?

You could access the credit bureau-operated at www.annualcreditreport.com. to attain a free copy of your credit report from every credit reporting agency. In the U.S.A. a federal law the FACT Act (Fair and Accurate Credit Transactions Act), entitles each legal U.S. resident to one free copy of their credit report from each credit reporting agency once every twelve months. However, this report does not contain credit scores.

Look over your personalized details for mistakes, such as your name being incorrect, wrong address or Social Security numbers, etc.. In addition, you should review your financial info for details like loans displaying a balance is due even though it has been paid off and credit cards or other accounts you previously cancelled. The more accurate your reports are, the fewer questions a lender will ask, so report all errors and have the mistakes rectified as soon as possible.