The Importance of Your Credit Report

Few documents in your financial life hold as much importance as the credit report. Not only are credit reports used to determine whether or not you will get the loan you need, but they are used for a variety of other purposes as well.

For instance, the information in your credit report will in large measure determine the interest rate you get on the loans you need. While those with sparkling credit reports can enjoy the lowest possible interest rates, those with negative events in their credit history are often relegated to so-called sub-prime loans. Sub-prime loans come saddled with very high interest rates, so it is important to keep your credit report as clean as possible.

While most people realize that credit reports are used to make loan decisions, not everyone knows they have a number of non-financial uses as well. For instance, some employers will pull credit reports when making hiring decisions, reasoning that those whose financial house is in order will be the most stable and profitable employees. Therefore, not only could the information in your credit report cost you a loan, it could even cost you a job.

In addition, many insurance companies use credit reports to determine rates on car insurance. Many actuarial studies have revealed a link between creditworthiness and accident rates, and this provides some justification for setting car insurance rates not only on driving history but on credit history as well.

With all this at stake, it certainly makes sense to know what is in your own credit report, yet all too few consumers take the time to review their own credit histories and make sure they are accurate. It is not at all unusual for credit reporting agencies to make mistakes, and some estimates put the error rate for credit information at nearly 50%. Taking the time to review your own credit report at least once a year will be time well spent, and it could end up saving you a fortune in the long run.

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