Your credit history is something that you’ll have your whole life. It records both the good and the bad of your spending and credit history. So why is a credit report or history necessary? You need to understand what this report contains and what it doesn’t in order to understand that question. If you need credit from a company of any sort, that credit report or history will be your way of earning their trust. When you borrow money from a bank or credit union or lender of any sort, that credit history will tell them if you’ve paid back money from other lenders in the past and allows them to measure your trustworthiness. This is true of any business at which you apply for credit; they’ll decide if they can extend that credit based on your report or if they think that perhaps you’ll have a hard time repaying that money.

So what is listed on your credit report? This would include your credit card accounts, loans you’ve had, and these types of credit activities. It will include the balances you still have outstanding on those loans and your payment history as well. And that payment history means if you pay those things regularly and on time or if you’re late with those payments. And if a lender has had to take action against you for being late, such as leveling fees or assigning you to a collections agency, these will be noted as well.

So who gathers this information about credit reports? A business will get this information from a Consumer Reporting Agency (CRA). This CRA will gather this information from other lenders, store and keep it together and then sell it to these businesses. A CRA will charge these businesses for giving them this information so they can make their decisions before extending you credit. In the U.S., there are actually three major CRA companies in business.

And what about your “credit ranking” or “credit rating”? This is an important part of your credit history. This ranking or rating is a way of comparing your credit history with the average consumer and their rating. This rank or rate is calculated by using the history you have of charging on credit cards, borrowing money, and repaying money as well. Those with a good ranking or rating typically are approved for more loans and lines of credit; those with a poor rating or ranking have a harder time getting these things. So you need to understand your credit rating and review it often if you ever want to borrow money or get a new credit card.

Mistakes on your credit report should also be corrected. Many don’t understand the importance of checking it often for these mistakes. Creditors are not the only ones that look at these mistakes; potential employers, insurers, landlords, and sometimes even the government will look at it as well! Any information that’s incorrect should be fixed with the CRA as soon as possible, and correct information should be provided as well. Sometimes this takes a while; it might take as long as 45 days before those corrections are made! But afterwards you can request a new report be sent to you so you’re sure it’s right.

And these things are all important since information on your credit report can be there for as long as seven and in some cases even 10 years.