Credit Report
A credit report is an official document created by a credit bureau in response to a request for the credit history of an individual, company, or sole proprietor. This document can be provided directly to the owner of the credit history to monitor the status of existing loans and manage their debts. Individuals must track their credit history to ensure that it does not cause problems in the future and to influence business relationships positively. Additionally, financial institutions, employers, and landlords can request a review of an individual’s credit history. In such cases, a good credit report guarantees that a person can secure a new job, rent a home, and more.
How Is Credit History Formed?
A credit history starts when an individual or entity takes out their first loan. Each new loan is recorded, including the amount of debt, monthly payments, account status at the end of each month, any delinquencies or penalties, refinancing, or debt restructuring. Based on the credit history recorded in the credit report, the credit bureau forms a borrower’s credit score. This score is not a fixed value; it can fluctuate. For example, frequent credit checks might be perceived as an attempt to take on more loans to deal with crisis periods, temporarily lowering the score. The score also drops in cases of delinquencies when a borrower fails to make mandatory payments on existing loans. If a borrower frequently faces penalties, their credit score drops significantly, closing off the possibility of obtaining new loans until the person (or organization) starts managing their credit responsibilities responsibly.
Maintaining a Positive Credit History
To achieve a positive credit report, it is essential to make all payments on time, avoid delinquencies and penalties, and demonstrate a responsible approach to finances. Experts often advise against using more than 30% of the credit line on credit cards, as this can positively impact the borrower’s credit score and history. Another good practice is to use a loan and repay it within a period that does not exceed the grace period. This approach offers a double benefit: it helps build a high credit score and provides access to additional funds without extra fees.
Why is Monitoring Credit History Important?
A credit report is an official document that significantly impacts other aspects of life:
- Approval of new personal or business loans;
- Obtaining new loans with favorable interest rates;
- Renting comfortable housing;
- Employment in government positions and jobs with high financial responsibility;
- Getting favorable rates for car and home insurance.
Requests for obtaining a credit report can be hard or soft. A soft inquiry occurs when an individual requests their credit report or when some financial organizations check a potential borrower’s credit score for pre-approval (not for issuing a new loan but only to determine eligibility). In contrast, hard inquiries involve a detailed credit history review, which is sent directly before deciding on a specific loan amount.
So, a credit report is a document that can open doors to new financial opportunities or hinder one’s ability to obtain desired outcomes, depending on the individual’s financial behavior.