A credit report is a reflection of an individual’s ability to manage money and debt. It serves as a tool for creditors to evaluate the credit worthiness of those seeking loans for a variety of purposes, including mortgages, vehicle loans, and revolving credit facilities. The combined record of activity in a person’s credit report results in a cumulative score that is used to establish thresholds for credit qualification.

The Credit Reporting Agencies

There are three main credit reporting agencies: Equifax, Experian, and TransUnion. A 2003 federal credit law included a provision that entitles every consumer to obtain a free credit report from each of the reporting agencies once every calendar year. The reports can be ordered through www.annualcreditreport.com. Reports obtained from any other entity may include a fee and be difficult to read.

Reading a Credit Report

Credit reports contain four separate categories of information. They include personal data, a summary of the person’s past and current credit accounts, public information such as bankruptcies or tax liens, and recent credit inquiries

Reporting agencies isolate positive credit accounts from negative ones. This allows for easier interpretation should questions arise regarding the scoring. Negative items can include delinquent accounts, past due payments, collection agency actions, and any court related judgments. These items will show up as “charge offs,” “bad debts,” or “placed in collections” on the credit report.

Improving a Credit Score

It is important to remember that there are no standards for determining credit worthiness. Every lender interprets credit data differently, and the criteria for extending credit will vary by lender.

The most significant improvement to a credit score can be obtained thorough examination of the credit report and subsequently disputing inaccurate information. In fact, erroneous delinquent credit reporting happens quite frequently. The credit reporting agencies provide a form for filing disputes on credit related items.

It is self-evident that maintaining current payments on outstanding loans is an important aspect of raising your credit score. Other improvement methods include preserving older credit accounts to continue displaying their prompt payment history, avoiding opening unnecessary accounts, maintaining low or zero account balances, and contacting creditors with problems prior to missing a payment.