What You Need to Know About Credit Reports
What is a credit report?
A credit report is the foundation for your credit profile. It contains details about your history as a credit user. It lists all the accounts you have and shows if you make your payments on time each month. It also shows when you’ve applied for credit.
When does your credit report start?
You aren’t born with a credit report. Most people don’t have a credit report until they turn 18 because that’s usually don’t get credit before that age.
There are some exceptions.
Credit cards
Some credit cards will allow your parents or guardian to add you as an authorized user on their account. That means you get your own card and can use their account like it is yours.
Authorized users often build credit history. So, adding you can help you build credit early (as long as they make all the payments on the account all the time).
Auto loan
If your parents or guardian are willing to cosign on an auto loan for you, then you can get an auto loan when you’re under 18. Cosigning means that your parents take responsibility for paying the loan if you don’t pay it.
If you get an auto loan at 16 when you get a car, then you will start building your credit history. Keep in mind that any loan your parent or guardian cosigns will also affect their credit.
So, make your payments on time or you could ruin your credit and theirs!
What does a credit report say?
There are four main sections to a credit report:
- Personal information, including your name, address, the name of your employer and your Social Security number
- Account history that shows all the credit accounts you have. Each account lists the status of the account, the current balance, and the payment history
- Credit inquiries which happen when you authorize credit checks when you apply for new credit
- Public records, which show things like debt collection accounts that can happen if you don’t pay your bills on time
Where do credit reports come from?
Credit reports are created and maintained by companies known as credit bureaus. There are three companies in the U.S. that do this:
- Experian
- Equifax
- TransUnion
Each company has its own version of your credit report. So, in reality, you actually have three reports instead of just one.
What are credit reports used for?
Lenders and creditors use credit reports to decide if you qualify for new credit. They will request your reports from at least one credit bureau anytime you apply for credit.
If you have lots of missed payments or other negative items in your credit report, you won’t get approved for the credit you want.
Other people can check your reports, too.
- When you rent your first apartment, the landlord will check your credit to see if you will be a responsible renter
- When you apply for a job, many employers check your credit before they hire you
Smart Money Tip: Check your credit report every year
The U.S. Congress passed a law that requires credit bureaus to provide one free copy of your credit report each year. You can download your reports through the website annualcreditreport.com.
It’s a good idea to check your credit report each year to see what it says. Credit bureaus can make mistakes. Your report may have negative information even if you always pay your bills on time.
Looking at your reports each year allows you to catch these mistakes and correct them with the credit bureau.