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How Credit Reports Work

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As nice as it would be to be able to go through life without using credit, the reality is that is really isn’t an option for the vast majority of people. There is going to come a time when you want to buy a home or a car, or perhaps even something as simple as a new appliance that you can’t really afford to pay for with cash. When that time comes, you are going to have to apply for credit, at which point the potential lender is going to have to take a look at your credit score. Just about everyone knows the importance of that score, yet it’s not everyone who understands how a credit report works.

It’s always a good idea to know where your credit score stands, and the only way to know that is to get a look at your credit reports. You’ll notice that the word “reports” is plural, and that is because there are three different credit agencies that independently deliver your score. Having a great number on one of those credit reports may seem great, but if the other two are not very good, you might find that lenders are not quite so willing to extend you a line of credit.

A credit report lists all of your credit history from the very moment you started paying bills. They will include such things as your credit card history, as well as all of your utility bills and any other times you have had to pay back a lender. Looking at a report can be confusing, as it will not tell you whether or not you are deemed to be a risk or a safe bet. That is something that has to be decided by the lender, who looks at your previous history, looking for instances where you were late with payments. Every late or missed payment has a negative effect on your credit history and can greatly lower your credit score.

While credit reports contain a very detailed history of your past payments, they do not include such personal information as your income, bank account balances, race, health and other information that may affect whether or not a lender will extend you credit. The reason they are not included is because a lender could form a bias that has nothing to do with your credit history, which is really the only factor that should come into play.

The 3 major credit bureaus – Equifax, Experian and TransUnion – use your credit history to come up with a score that ranges from 300 to 850. The higher the number, the better chance you have of being able to buy that new car or house without any major hassles. There are many different companies that now allow you to access and monitor your credit score online. While many of these companies claim to be free, most will actually end up charging you a monthly fee for their service. It is always best to read the small print before deciding to use one of these services to access your credit reports.

About Anthony B.

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