How Well Do Your Understand Your Credit Report?

You probably know all too well that the information which is contained in your personal credit report is used by the loan and credit card companies when determining whether to extend credit to you, but do you know exactly what information your personal credit report contains? For example, did you know that the details which are contained in your personal credit report could determine whether or not you can buy a new house or are going to have to stay in your current 'shoebox'?

Many people think that if a lender looks at your personal credit report they are simply looking to see your credit score and, although this is certainly one of the things that they do look at, they are looking at a great deal more. Above all, lenders are looking to see how much debt you have in comparison to to your income and even fairly small accounts, such as those with a mail order company, will be treated as an income deduction when when it comes to considering an application for a loan.

If a credit card company or other lender calculates that you have more money going out than you have coming in then your request will undoubtedly be turned down. In fact, by law a certain percentage of your income has got to be available to meet loan payments before the lender is allowed to approve it, regardless of the purpose of the loan.

Lenders are also looking back at your credit history over the past seven years to see how you have handled loans in existence during that period. In particular, they are looking at whether you have made payments on time and will play close attention to any payments which were more than thirty days late. It may not have appeared particularly important to you at the time that you ran into a few problems and were late making payments for a few months on an account, however any new lender will certainly consider this when assessing the risk of lending to you now.

Lenders is also going to see whether or not any of your accounts have run into debt during the past seven years and ifthese debts have now been paid off. If you have payments outstanding on an existing agreement lenders will be very wary about extending you additional credit until these are cleared.

Finally, your personal credit report will also show whether you have filed for personal bankruptcy, usually in the past ten years. Some people think that a company is far more likely to advance you credit if you have filed for bankruptcy because they have the protection of knowing that you may not file again for a number of years. However, this is not the case and filing for personal bankruptcy is viewed by lenders as a red warning flag indicating that you have already demonstrated a tendency to get yourself in over your head when managing your finances.

Your personal credit report is an extremely important document that you should not only understand but which you ought to review occasionally for your own protection and peace of mind. Fortunately, the law states that you must be sent a copy of your personal credit report once each year if you ask for it.