What Really Matters When It Comes to Credit Reports

Source: Thinkstock

Your credit report includes important information about your credit history, including your personal information, loans, and debt, and it also shows whether you pay your bills on time. If you haven’t viewed your credit report recently, you can find out how to do so here.

Keeping up to date on your credit report is important because your credit report directly affects your credit score. In addition, if you check your report regularly, you are more likely to catch mistakes or notice unusual activity in case someone has compromised your identity. While lenders look at your credit score to see if you can qualify for a loan, future employers may pull your credit report to see if you are responsible with your bills (and make assumptions about your job performance based on what they see.) Therefore, your credit report is important for several reasons.

Read more: 3 Ways You May Be Accidentally Ruining Your Credit

The importance of credit scores seems to be talked about more frequently than the importance of credit reports, but your credit report matters because it affects your credit score. Your FICO score (which is the score that most lenders look at) is determined by your payment history, the amount you owe, the lengths of your credit history, new credit, and the types of credit used. Thirty-five percent of a score is based on payment history, and 30 percent is based on amounts owed, so those are the biggest and most important aspects of a score (in general).

Read more: Maximizing Credit Card Rewards: 5 Ways to Earn Big

However, the importance of each category varies from person to person. If you haven’t had a credit history for very long because you are young (or for some other reason), your credit history will be calculated differently. So even though the two categories mentioned affect the general population, the importance of individual categories might change depending on what is on your report. The information that goes into these numbers comes directly from your credit report and then affects how likely you are to get a loan, and at what rate.

Read more: In Debt? Here’s How to Deal With Creditors

In addition to the fact that your credit report directly influences your credit score, which in turn affects lenders’ decisions, your credit report can also affect your insurance premiums. Car insurance companies look at your credit history in order to determine how much of a risk you are to insure.

While lenders may look at several factors when deciding whether to give you a loan, credit-based insurance scores are used by insurance companies to determine if you will file a claim in the future; they don’t factor in your income history, gender or your job. The items that do negatively affect your ability to obtain low-cost insurance include past-due payments, high debt, accounts in collections, and so on.

One of the lesser-known ways that credit reports impact Americans is that they can affect your job search. Many employers will consider credit reports when making job decisions, and this means that while many people need jobs desperately, they can’t get the ones they want because potential employers are looking at their credit reports. Seeing a poor credit report may cause employers to change their mind about giving you a job offer, and they may even rescind an offer.

If an employer sees that you regularly make poor financial decisions or that you don’t pay your bills on time, you may appear irresponsible. This is one reason that it is important to check your report regularly. If you find a mistake, you may not be the only one who has noticed the glaring debt that isn’t even yours. Some states have restrictions about checking applicants’ credit history, but you should still be careful to check your report and make sure all the information is accurate.

It’s important to note that although you can’t dispute a credit score, you can dispute a credit report, which means you have more control over it. So while being turned down for a car or home loan is frustrating, if you look over your credit report and determine that there are mistakes, you can ask the credit reports to fix them, and hopefully then you will qualify for a loan. The same is not true for a credit score, but improving your credit report will directly influence and help your credit score. As mentioned before, since some employers look at your credit history, fixing issues as promptly as possible could also help you with your job search.

If, on the other hand, the issues on your credit report are completely legitimate, then it is up to you to fix them. There are several ways to improve your credit score, and paying your bills on time is one of the best ways to start. Unfortunately, if you can’t get a job because employers are looking at your credit report, it can be difficult to pay your bills or pay down your debt. This shows you why your credit report is important in more ways than just assuring you get a loan. Your credit report can negatively affect your car insurance rates, and even your chance to obtain a job.