Understanding Your Credit Report
In some countries like the U.S., how you handle your money, debt, and bills matters a great deal as it dictates whether lenders will want to do business with you. Your financial behavior also helps lenders determine what interest rate to charge you. You often hear the terms “Credit Report” and “Credit Score” and whether your credit is “good” or “bad”. But what do these credit terms mean and how will your behavior towards your finances affect your future as a consumer in the United States? In the U.S. where credit plays a very important role in our financial life, it is essential to understand these terms.
What is Credit?
Credit is basically a cash advance. Credit allows us to consume today what we cannot afford today but can repay over time. Credit gives us financial flexibility. For example, it may happen that you don’t have enough money to buy a car today, but if you have a few hundred dollars that can be used to make monthly payments for a car loan over 3-5 years, you could then use credit to make the transaction. When you use credit to spend, you are taking on debt. Taking on more debt than you can repay is often very risky, so it’s important to use credit responsibly.
The Credit Report
A credit report provides detailed information on how you have used credit in the past, including how much debt you have and whether or not you’ve paid your bills on time. The three national credit reporting agencies (a.k.a credit bureaus) in the U.S., Experian, Equifax, and TransUnion, compile your credit information from various reporting sources, such as lenders, into a credit report. A credit report includes information such as bill payment history, types of credit accounts, and any outstanding debt. Your credit card may contain the following information:
- your name, address, and Social Security number
- your credit cards
- your loans
- how much money you owe
- if you pay your bills on time or late
- if you filed for bankruptcy
- If you have judgments or liens
Your credit report does not contain information such as your income, purchases paid in cash, your medical history, your ethnic origin, your political affiliation or your criminal record.
It is recommended that you check all of your three credit reports regularly to ensure that the information is correct since this information affects your credit score. Once a year, you can get your credit report for free from Equifax, Experian, and TransUnion on the Annual Credit Report site established by the three credit bureaus. Because of COVID-19, Equifax, Experian and TransUnion now offer free weekly reports until April 2021 on the same site: www.annualcreditreport.com. Certain credit monitoring companies like Idendity IQ offer credit monitoring services which include credit reports and credit scores and also let you do some simulations & forecasting and provides you with steps you need to take to improve your score to a desired level. CLICK HERE TO GET A ONE WEEK TRIAL on IdentityIQ.
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