What Is A Credit Report? Everything You Should Know
When the time comes for you to buy a house, your mortgage lender will look to a credit report to better understand your financial habits. But just what are lenders looking for? What is a credit report and what information does it provide?
Read on to answer these questions and learn the importance of understanding your credit history.
What Is A Credit Report And Why Is It Important?
A credit report is an official and detailed statement, created by a credit bureau, that breaks down your past and current credit activity. The same way that most people have more than one credit score, most people will also have more than one credit report.
Counterintuitive as it may seem, credit reports do not include your credit score. Instead, credit reports provide a wealth of information which is used when calculating a borrower’s credit score, though it is not reflected in a credit report.
So, why are credit reports so important? On top of impacting your credit score, lenders will look at your credit report when deciding whether they should give you a loan and at what interest rate.
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What’s In A Credit Report?
The information that makes up a credit report is generally the same, though specifics may vary across the three national credit bureaus:
This variation is because sending borrower information into a credit reporting agency is a voluntary process at the discretion of creditors and businesses. This means that how much and the type of information each credit bureau has, may vary.
TransUnionⓇ, for example, will list specific job titles and dates of employment in their credit reports, while EquifaxⓇ and Experian™ typically only include an employer’s name in their employment history sections.
Like most official documents, credit reports contain identifying information about the borrower. This includes the following:
- Your full name, nickname(s) and any name previously affiliated with a credit account
- Current and former addresses
- Social Security number
- Phone number(s)
- Employment history
The bulk of a credit report is made up of your credit history and existing credit information. This includes details about past and present credit accounts – both those that are still open and accounts that you’ve closed. Mortgages, credit cards and personal loans are all examples of accounts included on credit reports.
For each account, a credit report will also include the following information:
- The credit limit or amount
- Account balance
- Account payment history
- Dates of account opening/closing
- Creditor name
Credit reports will also include a complete list of your credit inquiries from the past 2 years. A credit inquiry occurs when a company or individual requests access to your credit file.
A credit report will also specify whether each inquiry was a hard or soft credit check (more on this later) and whether the inquiry was voluntary or involuntary. A voluntary inquiry is created by the consumer, like in the case of applying for an auto loan or a credit card. An involuntary credit inquiry occurs in the case of a lender pre-approving you for a credit card.
A credit report will also compile public information relating to your credit worthiness. This includes all of the following:
- Civil suits and judgements
- In some cases, instances of overdue child support
What Is An Inquiry On A Credit Report?
A credit inquiry serves as a track record for your credit history and usually occurs when applying for things like a loan or a credit card. Whether an inquiry is visible on your credit report depends on whether it was a hard or soft credit pull.
Let’s look at both hard and soft credit inquiries and how they compare.
What Is A Hard Inquiry On A Credit Report?
Hard inquiries are best known for having a short-term effect on your credit score. Since most credit scoring models are based on the frequency and timeliness of your credit checks, it’s common to see your score dip after a hard credit check. But don’t panic, according to FICOⓇ, hard inquiries won’t deduce your credit any more than 5 points.
Hard inquiries are also what lenders will see on a credit report when running a credit check. Credit checks are part of most lenders' evaluation process, which helps them decide whether to offer you credit and at what interest rate.
What Is A Soft Inquiry On A Credit Report?
Soft inquiries have no impact on your credit score and are not visible to lenders for credit checks or any other lending-related instances. Credit reports only include soft credit pulls in specific circumstances, including:
- You check your own credit
- You have authorized a potential employer to view your credit report
- A credit card company or credit provider wants to qualify you for preapproval
- An existing credit provider wants to check your credit
The Bottom Line: Make Sure You Understand Your Credit Report
Understanding what’s in a credit report is key to understanding how a lender views you as a borrower, and why you may or may not get approved for a mortgage. The Fair Credit Reporting Act gives you annual access to one free credit report, so be sure to review your info before applying for a loan.
Thinking of applying for a mortgage? Get your credit sorted beforehand to give yourself the best shot at low rates. Check out the Rocket MortgageⓇ Learning Center for tips on improving your credit.
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