A credit history contains more than just who you do business with, but where you live and possibly lawsuits that involved you as a defendant. This is why it is critical for you to keep your credit file as clean as possible and pay back any to whom you owe a debt. Also, more than just creditors want to see the data in your credit history.
Where Does it Come From?
Three national credit bureaus control the majority of consumer credit data in the U.S. The term "national" in this sense does not signify a federal government agency. The U.S. only has three companies that collect data from customers across the entire country. Local bureaus exist in 2011, but are far less important than the national bureaus and sometimes only serve their communities or the major agencies. Almost all data from the credit bureaus comes from credit applications and payment history on accounts, but the major agencies also incorporate public records, such as judgments for a bank levy, into their databases.
Importance
Just about anyone that does business with a consumer knows the importance of a credit history. Employers, for instance, look for financial data that indicates a lack of character or a threat to the company, such as a bankruptcy. Landlords and utility companies run a credit check, because they technical provide a creditable service, so they want people that will pay on time. Insurance company data suggests that people with good credit histories also tend to make less claims and careless decisions on the road.
Misconception
A credit history and credit score are two separate items, but both are just as important. Credit scores are a calculation of risk---the chance that you repay a debt on time---based on data in a credit history. Risk calculation can always change based on the formula in use, but credit histories remain relatively static. Consumers have three reports, one from each major agency, and only mistakes on the agency's part can lead to different reports and sometimes lenders not reporting all the bureaus. Lenders usually set interest rates based completely or partially on the credit score results.
Tip
Federal law requires the agencies to let consumers see their credit file for free once each year and sometimes more than that, such as when a lender or employer rejects an application based on something in the applicant's credit file. Consumers have the right to dispute information, so they should always complain to the agencies when they spot a mistake.
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