Credit Reports in Easy Terms?

What are Credit Reports?
Credit reports are a reflection of your ability to repay lenders such as banks, mortgage companies, department stores and credit card companies. Credit reports are a way to score you based on your payment history. These scores are then used by lenders to determine how likely you are to repay them.

Who creates Credit Reports?
Credit reports are created and maintained by credit bureaus. These bureaus have clients such as banks, mortgage companies, department stores and credit card companies who provide your payment history to the bureaus who then take this information and calculate a credit score that appears on your credit reports. Credit reports are the outcome of this collection and scoring process. Scores in credit reports range from 350 (you are a high credit risk) to 850 (you are the lowest credit risk). There are three bureaus in the United States: Equifax Credit Information Services, Inc., TransUnion LLC Consumer Disclosure Center, and Experian National Consumer Assistance Center.

How are Credit Reports Used?
Lenders use credit reports to evaluate you as a potential borrower. From the scores in your credit reports, judgments are made by lenders as to your likelihood to pay them back. Each lender has their own criteria and interpretation of the data in your credit reports. From your credit reports, lenders will determine whether they want to extend you credit and at what interest rate. Broadly speaking, if your credit reports have high scores, you will be able to borrow money at lower interest rates, saving you money. Or if your credit reports show scores that lenders deem too low you won’t be able to borrow money.

How Can I Change My Credit Reports?
Managing your credit reports tends to fall into two primary areas. The first is monitoring your credit reports to ensure the bureaus have accurately documented your credit history. The second is managing your credit in ways that increase the scores in your credit reports. Some of the ways you can do this include:

• Have multiple types of credit – lenders like to see that you can manage several types effectively.
• Reduce your debt – if you already owe a lot of money it reduces your ability to pay off new debt.
• Make payments on time – lenders want to know you can reliably repay your loan.
• Avoid excessive credit – just because a credit card company offers you more credit doesn’t mean you should accept it because it increases your risk of not paying in the eyes of another lender.
• Take precautions to avoid identity theft – someone abusing credit using your identity harms the scores in your credit reports