Whenever you apply for a loan, creditors need a way to determine whether you are likely to repay the money as expected. Some employers, especially ones that deal with sensitive information or that handle cash, also want to know how you handle your personal finances before hiring you. Several credit bureaus, including Experian, TransUnion and Equifax, keep track of this information and compile it in your credit file.
Types
Your credit file contains two broad categories of information: identifying information and information about your financial history. Identifying information includes your name, current and past addresses, Social Security number and date of birth. Financial history information includes your credit accounts, how you pay them, how much you owe, how much credit you have available, how much credit you've applied for and any public records such as judgments, defaults or foreclosures.
Time Frame
As a general rule, information remains on your credit report for seven years. However, as the information ages, it has a smaller impact on your credit score. For example, a default six year ago will not hamper your credit score as much as a default just two months in the past. Exceptions to the seven-year time frame include credit inquiries, which stay for just two years, and Chapter 7 bankruptcies, which remain for 10 years.
Benefits
Your credit file can be used in applying for a loan anywhere in the country. For example, even if you have lived in Houston your entire life and suddenly move to Maine, lenders in Maine can have virtually instant access to your credit report containing all your information from Houston so the lenders can judge your credit. Though this might not seem so beneficial if you've had credit problems in the past, it streamlines the process of applying for loans.
Misconceptions
Your credit file may be slightly different at each credit reporting agency because each agency has its own method of gathering data. In addition, some creditors only report information to certain credit bureaus. As a result, your credit score may differ slightly from one bureau to the next. Regularly check your credit file at each reporting bureau because each file might have different records that you need to correct.
Considerations
Because of the importance of your credit file, check it at least once per year for errors. To make it easier, the Fair Credit Reporting Act, a federal law, mandates that Experian, TransUnion and Equifax each give you a free copy of your credit file once every 12 months. Order your free report online at annualcreditreport.com. You can even dispute credit file errors online with each bureau.
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