credit reportWe all know what it’s like to receive grades, but perhaps no grade is more important than how well you’re managing your credit. Whether you need to take out a personal loan or mortgage, want to open a credit card or simply need to be approved to rent an apartment, your credit reports and/or credit scores are likely to come into play. Unfortunately credit reports and scores can be confusing, which leaves some consumers unsure about where their credit stands. We’ve already dug into credit scores and why they matter, and now we’re digging into credit reports. Keep reading to learn what credit reports are and why they matter.

What is a credit report?

A credit report is a detailed record of your credit history, or how you’ve handled debt, bills and credit payments in the past. There are three main credit bureaus that create credit reports: Experian, Equifax and TransUnion. Each of your lenders, from your credit card issuer to your mortgage lender, reports your monthly account activity to the credit bureaus. That information is then used to create your credit reports. Since each bureau receives account information from different sources, each of your reports will likely be slightly different, which is why it’s important for you to check all three of your credit reports.

What’s the difference between credit reports and credit scores?

The easiest way to explain the difference between credit reports and credit scores is to compare it to school. Think of your credit reports as progress reports and your credit scores as final grades. Your credit reports include a lot of detailed information, including your credit account history, credit inquiries and public records information. Companies (e.g., FICO, Vantage) then use that detailed information to give you a simple score — your credit score. Like a grade, this score is a way for your overall performance to be quickly evaluated. Instead of looking through your records, a credit issuer, landlord or employer can quickly see that you are an A, B, or C student when it comes to credit, and decide how trustworthy you are accordingly.

Why your credit reports matter

Credit reports are tools that lenders, rental property owners, insurers and often prospective employers use to learn information about you before smacking their gavels to make a decision. This means when you apply for a new or refinanced loan, new or refinanced mortgage, new insurance, potential employment (if the employer does a credit check), etc., the deciding party will ask the credit reporting companies for a copy of your credit reports. We should note that they may ask for your credit scores, as well. Although your credit reports and scores aren’t the only factors lenders consider, they have a hand in determining your credit extension, loan approval, interest rates, and job or apartment hunt. This means if your credit reports are riddled with missed payments and other derogatory items, the evaluating party will likely not look favorably on your application.

Why is it important to check your credit reports on a regular basis?

Since bad credit reports can draw overcast skies over your future credit card options, job prospects, loan choices and interest rates, it is important to regularly check all three of your credit reports. Doing so will allow you to see where your credit stands and to address any errors — the former is especially important if you plan to apply for anything in the near future. When you check your credit reports for errors, make sure that your name and address on the reports are correct and confirm that you recognize all the accounts as well as their lenders or issuers. You’ll also want to look at the payment history and status of your accounts and confirm that information is accurate. If you spot an error on any of your credit reports, be sure to report it immediately, as it could be negatively impacting your credit. Errors can be a result of a number of things, including errors by your issuer and identity theft. The latter is much more concerning, as it means someone opened a credit account using your name and identity. Regardless of the cause, your first step should be to call the reporting party (e.g., the reporting party) and the credit bureau.

How to check your credit reports

It might be tempting to just check one credit report from one credit bureau, but this shortcut will only give you one piece of the puzzle. That’s because not every credit bureau receives information from the same sources or lenders, as we noted above. This means your TransUnion and Experian reports might list one credit card, but your Equifax credit report might not. As such, it’s best to check all three of your credit reports if you want to know (and you should) how good your credit history actually is.

There are a couple of ways you can check your credit reports. First, you can get a copy of all three credit reports for free once every 12 months through AnnualCreditReport.com (note that any other copies requested within the 12-month span come with a fee). While checking your credit reports once per year is better than not checking them at all, it’s not the best option, as mistakes and phony credit accounts opened by identity thieves can happen at any time and wreak havoc on your reports, resulting in a drop in credit scores. As such, it’s in your interest to check your reports as often as possible.

Another way to check your credit reports is to consider signing up for a credit monitoring service. These services will not only provide you with copies of your credit reports immediately after signup, but they will also monitor your reports and alert you if something is changed or added. What’s more, most credit monitoring services offer free trials, meaning you can test the service before making a financial commitment. Want to learn more? Visit our credit monitoring reviews to find the right service for you.