Personal Finance and Family Finance ideas and articles from an LDS perspective.

Credit Report

What’s worth more than anything else in your financial future?   What is one of the most misunderstood concepts of personal and family finance? What can make or break your financial freedom - and put at jeopardy a portion of your “precious, priceless agency” and put you “in self-imposed servitude” as Elder Hales taught earlier this year?  Your credit score.

So what exactly is a credit report? And how is your credit score determined?  Think you know?  Are you willing to bet your financial future on it?

Let’s get started…

First, off, you need to realize that a credit report and a credit score are two very different things, although they generally go together.

What’s a Credit Score?
Chances are, you have a credit score - whether you realize it or not. Credit scores are essential if you’re hoping to borrow money to buy anything - whether on your own, or as a married couple. (Important note - many/most financial institutions require credit information on BOTH spouses when giving a loan - so don’t think you can get by with your husband’s/wife’s credit score alone!) Beyond just borrowing money, credit scores can also help/hinder (mostly hinder) your ability to get that job you want, the insurance you need, that apartment or toy you really want, or just about anything else that involves giving or receiving money. . . If its not managed correctly, your credit score can own you – so make sure you own it!

A credit score helps your lender decide if you’re worth the risk their about to take by giving you money. If you don’t pay back the loan, their business (or their members if its a credit union) are placed at risk, so they want to make sure you’re willing and able to pay the loan back now and into the future. Lenders use a credit score to help gauge your risk, and help them in their decision whether or not to give you money, and on what terms they will. They might agree to go with you anywhere, and do anything you want if they’re interested in you and what they hear about you is positive. If you’re high risk (low credit score) then they might not give you any money at all. Or worse, they might agree to give you the money you want, but at a horrible interest rate and on very stiff terms – no fun at all. If you have a great credit score (low risk), then they’ll be happy to give you money, and will usually do so with a nice interest rate, and they’ll probably even add some other nice shiny bells and whistles to the package - just because they like you.

What’s a Credit Report?
Credit scores are based on information that is kept on a written, semi-permanent report. There are different reports out there offered by different people – but that’s a discussion for another day. Your credit report is basically set in stone and is available for just about every lender to see.

So, what does your credit report include? There’s a bunch of things:

• Personal Information: Name, birth date, Social Security Number, and Address. Some reports also include recent employers.
• Accounts you’ve held: This could include apartments you’ve rented, utilities you’ve paid, hospital and doctor bills, credit cards, store cards, loans, lines of credit, etc. The report tells when accounts were opened, when they were closed, last time you paid on the account, how much the balance was to begin with, what you currently owe, if you were ever late, and all sorts of other little secrets about your financial life.
• Credit Report Inquiries: Your report tells you and other lenders who else has been looking into your record.
• Other Unhappy Notices: If you’ve run into major trouble with money in the past – the report will show that as well. Missed payments, actions taken from collection agencies, and public record information from local and state courts like bankruptcies, foreclosures, tax liens, garnishments, legal suits, and judgments.

So now we’ve talked about what a credit score is, and what a credit report is. The next step, coming to Mormon Finance just as soon as I can type them up, will be posts offering greater detail about who gives reports and scores, what your rights are concerning your credit report, what determines your credit score, and how that credit score can make or break your financial life. Look for all this information on the Understanding Credit & Loans page.