What is a Credit Report?

When someone is buying a home, one of the first things a lender will do is pull the borrowers credit report. The lender will then use the credit report as one of several measurements to determine if the borrower will be eligible to receive the loan.

Since, as a borrower, you do not want to get stuck with any surprises, it is essential to look and your credit report and fix any problems, before applying for a mortgage.

Credit Reports have actually been around for awhile and began when local businessmen compared their transaction records. They would then use this information to determine if they would offer credit to an individual.

However, by the 1970's, credit reports had begun to contain a great deal of personal information, including sexual orientation, criminal backgrounds, race, information from public records, and in some cases even notes about the persons lifestyle from direct surveillance.

In an effort to curb this violation of privacy and to reduce discriminatory lending practices, Congress passed the Fair Credit Reporting Act of 1971. This removed much of the personally identifiable information from credit reports, instead forcing them to only contain financial information, such as information about debt, bankruptcy, and child support payments.

Today, credit reports no longer contain information about an individuals criminal background, political preference, or ethnicity. Also some types of debt are not included on the credit report, such as bankruptcies that are at least 10 years old and regular debts that are at least 7 years old.

Credit reports are managed by three different credit reporting agencies, Equifax, Experian, and TransUnion, which collect information about lending, compile it into a report, and sell it for a fee. This should not cost more than $20 and many creditors will bill the borrower for the credit report fee.

Each individual is entitled to one free credit report per year from each of the credit reporting agencies. One of the easiest ways to get your free credit reports is to goto www.annualcreditreport.com, which you can use to receive your free credit reports. However, it is important to not get all three at once, instead get one at a time and check it for errors. It is a good idea to space out receiving all three over the course of the year.

All lenders rely on credit reports to determine how much risk they are facing, so it is important to be aware of what is on the credit report and to clean it up as much as possible.

Typically, the only people that can look at a credit report are prospective lenders, insurance companies, employers, and government agencies. However, it will also be released to someone who can provide a valid reason for seeing it, such as a landlord.

One of the sections on a credit report shows who has recently requested a copy of the report, which can provide an early indication of identity theft. Of course banks and creditors also look at this and if it has been requested too frequently, they may view this with caution.