Credit Reports Don't Tell a Complete Financial Story

In the world of finances, your credit report is one of the most important documents because it contains so much information about your financial habits. Your credit report is pulled from a database to which most, if not all, your creditors have reported data on your accounts.

A business that pulls your credit report at a given time can tell:

• When you opened your first account
• How many accounts you’ve opened
• How timely you’ve paid on those accounts
• How much outstanding debt you have
• How much credit is available to you
• Whether you have a mortgage or car loan
• How much student loan debt you have

Companies use this information to help decide whether to approve you for a credit card, loan, or another service that you receive before you pay for it, (e.g. electricity or cable service where you receive a month of service and then pay for usage).

Credit reports are used to gauge creditworthiness – whether you’re likely to pay back what you borrow. It’s based on whether you’ve paid your bills in the past.

Your credit report, as you may have already seen, don’t tell a complete financial picture. For example, if you were previously late on a few payments, your credit report won’t explain that you went through a job loss, divorce, or another major life change that impacted your ability to pay on time.

But that’s not all that’s missing from your credit report. Your credit report doesn’t include any information about your salary or income – another major factor that can help creditors and lenders predict your ability to pay back a credit card or loan. Sometimes your credit report will list an employer, but it’s often the employer reported by one of your creditors. That information can easily be inaccurate if you’ve recently changed jobs or have become unemployed.

Not all your bills are listed on your credit report. That even includes some of the bills you pay to companies who actually requested your credit report before approving your application. You can faithfully pay your electricity, cable, phone, and insurance on time every month for years and receive no benefit for those timely payments in terms of your creditworthiness. Also, some in-store credit accounts and nontraditional loans don’t get reported to the credit bureaus, so those accounts won’t help you either.

Even though assets can influence your ability to pay back a credit card or loan, they’re not listed on your credit report. So, having an expensive art collection or a sizable bank account won’t get you bonus points in the credit area. Arguably, if you have that much in assets, you don’t need the credit system so perhaps it won’t matter that this type of information isn’t included on your credit report.

Thankfully for some, most criminal history isn’t included on our credit reports. Being convicted of a crime won’t keep you from getting approved for credit as long as your credit history shows that you’re creditworthy. There is an exception: if your crime resulted in a judgment, lien, or debt collection, those will show up on your credit report. Businesses that check your credit report may not necessarily know that these are related to a crime, but these are significant enough delinquencies to lead to a denied application.

If you’re denied credit or loan based solely on your credit history, appeal to the bank asking them to review your other information – income, employment, and bank balances. Sometimes these other factors can help overcome the one-sidedness of your credit report.