Our credit report drives many decisions and purchasing behavior throughout our adult life. Buying a home or vehicle relies on having a satisfactory credit score, and the report is the document that keeps you apprised of your current score. The information in your credit report is gathered from all your creditors and used to generate credit scores.

Lenders look at your credit score to learn about your creditworthiness history, indicating how likely you are to pay back any loan they might extend. The score is determined by utilizing the information in your credit reports. FICO® Scores are considered the standard for credit scores, and as such, they are the go-to report for 9 out of 10 lenders.

Lenders want to understand the amount of risk they would take on by loaning money to someone. Credit scores determine the amount of available credit and the terms (interest rate, etc.) lenders may offer any individual. Maintaining your credit score is an essential part of financial health.

What is included in a credit report?

The credit report documents what types of credit have been used, the amount of time the debtor held the accounts, and whether bills were paid on time. It tells lenders the amount of credit used and how many accounts are currently open. A credit report provides lenders with a comprehensive view of a borrower’s credit history. A credit report also includes residency and legal and criminal information.

What is the role of credit reporting agencies?

There are three credit bureaus lenders rely on – Equifax, TransUnion, and Experian.

These companies keep files on millions of borrowers and sell the information to lenders, making credit decisions as permitted by law. Lenders and other businesses utilize the data in your credit report to assess your application for credit, loans, insurance, or rental properties.

As a consumer, you can also check your credit report for yourself to see where your score stands and to understand your ability to apply for and receive loans. 

When someone applies for a new line of credit, such as a credit card, the creditor asks one or more of the credit bureaus for a copy of the applicable credit report. The creditor will use the information to determine credit worthiness and an appropriate interest rate. Thousands of credit grantors – credit unions and banks, retailers, and credit card issuers – provide updates to the credit reporting bureaus once a month. The information regarding your payment history is added to the credit report. 

The credit data is pulled together when there is a request for a report. The report represents a snapshot in time and contains lender information, personal data, and court records. Making regular on-time payments to your accounts will eventually move your credit score in a positive direction while missing payments will hurt the score. 

A low credit score will either result in loans being denied or in high-interest rates. The higher the score, the better terms available. 

How Bankruptcy Affects a Credit Report

Filing for bankruptcy will negatively impact your credit score temporarily. However, if bankruptcy is on the table, credit has already been adversely affected by late payments and unpaid debts. The only way to repair your credit score is to fix the situation and move forward. Bankruptcy allows you to settle or eliminate your debts and move forward in a financially feasible way. Once your debts have been discharged, you can be in a more stable place and begin to build your credit once again. 

Richard V. Ellis is a Sarasota bankruptcy attorney who has helped hundreds of area families to get back on financial track. Call today for your free consultation.