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Credit Reports

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A credit report is the result of a credit check and is a summary of your financial history. A credit agency contacts your creditors and looks through the court system and public records to find out everything it can regarding your finances. The agency's final report lists your name, social security number and driver's license number, as well as past and current addresses, bankruptcies, foreclosures, liens, judgments, child support responsibilities, and payment histories on credit card and utility accounts. Usually, the agency will quantify this information into a score between 340 and 850; a score over 700 is good.

When you apply for a loan, lenders order a credit report in order to examine your financial viability and your income-to-debt ratio. The fewer red flag your report raises, the easier it will be to receive a loan with a good interest rate.

Banks aren't the only ones who can order credit reports, however; it's a good idea to check your own credit report and make sure there are no surprises when you apply for a loan. Equifax, Experian, and TransUnion are the three main credit agencies, and you can order a credit report for less than ten dollars (online or through the mail) with only your name, address, and social security number. Be wary of Internet advertisements for free credit reports; in many cases, you have to buy a separate product to receive the credit check.

If you notice any inaccuracies on your credit report, contact the credit agency immediately for information on how to correct the mistake. On the other hand, if the information is correct, but you want to clean up your report, you should reduce or pay off your debt as soon as possible (don't just consolidate). Other red flags (e.g. bankruptcy) stay on your credit report for several years, so you'll simply need to be patient.

Get in the habit, however, of reducing your debt. Keep low or no outstanding balances on your credit cards, and pay all your bills on time. In addition, avoid opening or closing multiple accounts at the same time, as this practice suggests financial instability.

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