About Credit History

Credit reports are a good indication of how a person handles his finances. Creditors report late payments, delinquent payments and even satisfactory payments to credit reporting agencies so companies can determine if the person is worthy of more credit. A credit history is also used as a way to determine if a person will be a trustworthy tenant, homeowner or car owner. That is why they are so important when applying for a loan and even a job.

Warning

Credit reports with a large number of negative reports will prevent a person from getting a loan or financing. When you are late paying your bills or if you have too much debt compared to your income level, your credit report will be detrimental when trying to find financing for a car, home or another big purchase. Even if you do get financing, you will be paying a much higher interest rate than those with decent credit. In some cases, your credit report may also be used to determine if you are a good candidate for certain jobs. Many auto insurance companies are also using credit reports to determine if a person is either responsible or irresponsible with their money because they are likely to transfer those habits to their driving skills.

Misconceptions

There are several myths and misconceptions surrounding credit reports and credit history. For instance, many people think paying off all their bills will instantly improve their credit score. This isn't true. Credit reports are monitored for years and it takes seven to 10 years for negative items to get removed, depending on the negative item. As a result, your credit history shows your financial habits over the last several years and your score will be affected until those negative pieces of information are removed.

Another major misconception about credit reports is that you can pay someone to clean up your history. This is only true in instances in which false claims and reports were made on your credit reports. However, if you have negative claims on your credit history, it's difficult and even impossible to get those items removed for several years. They may be able to get it removed for a short period of time, but those items will be placed back onto your report once it's verified as legitimate.

Types

There are three main credit reporting agencies: Equifax, TransUnion and Experian. Some creditors only report to one of these agencies while others may report negative or positive items to all three bureaus. They serve the same purpose and potential lenders or creditors usually check all three before making their final decision.

Benefits

Creditors can benefit from credit reports because they can determine if a person is a good financial risk before loaning him money or financing his purchase. This helps consumers in general because the companies do not need to pass those losses onto other customers. People with respectable credit reports also benefit because they can finance large purchases, get credit cards and be approved for loans for a variety of reasons. They also receive lower interest rates for good credit scores, which can save them thousands of dollars over the terms of the loan or financing.

Considerations

Credit reports are comprised of many considerations regarding a person's financial and personal history. When looking at your credit report, you'll find several pieces of information that you may not have even known were available. For instance, you'll likely see all of your previous addresses listed on your credit report as well as many of your former jobs. In addition to that, you'll find sections that list the account numbers you have with your creditors and the amount of money that you owe each one. Also, the contact information is listed with each creditor so you can contact them if there is inaccurate information on your report. Finally, you'll see your status with each creditor. It will show how late you are with payments, if your account has been "charged off" or if you are in good standing with the company.