Understanding How Credit Reporting Works

Credit is much more complicated than keeping a tally at the local grocery. As a credit-active consumer, you need to know how credit reporting works and what your credit report contains.


You are most likely already familiar with the concept of “credit,” the reputation for paying your bills on time that makes it possible for you to obtain money or goods with the understanding that you will pay for them later.

In fact, you probably have already put your credit to work for you. You employed it when you obtained an auto or student loan, used your credit card to pay for a trip or new suit, or were chosen as the tenant for your rented apartment or house. A solid history of paying your bills may also have been just the objective character reference needed to help you land your job, too.

But even if you use your credit every day, you may have questions about the credit industry and how it affects you. In today’s society, credit is much more complicated than keeping a tally at the local grocery. As a credit-active consumer, you need to know how credit reporting works and what your credit report contains.

What is a Credit Bureau?

A credit bureau or credit reporting agency is in the business of gathering, maintaining, and selling information about consumers’ credit histories. It collects information about consumers’ payment habits from credit grantors like banks, savings and loans, credit unions, finance companies, and retailers.

The credit bureau stores this information in a computer database and sells it to credit grantors in the form of credit reports. When you apply for a new credit card or loan, the credit grantor orders your credit report from at least one credit bureau and analyzes the information to decide whether to grant you credit. The credit bureau charges the credit grantor a fee for every credit report sold.

Although credit-reporting agencies provide your credit report to lenders when you apply for credit, they do not make actual lending decisions. It is up to individual lenders to evaluate your credit report and any other factors they consider important and then decide whether or not to offer you credit.

The Three Consumer Credit Bureaus

There are three major credit bureaus providing nationwide coverage of consumer credit information in the United States: Equifax, Experian, and Trans Union.

Although many national lending institutions report consumer credit information to all three, smaller banks and other credit grantors may report to only one-or even none. Therefore, your credit report from one credit bureau is not necessarily exactly the same as your credit report from another.

What Exactly is a Credit Report?

A consumer credit report is a document that contains a factual record of an individual’s credit payment history. Credit grantors are permitted by law to review your credit report to objectively determine whether to grant you credit.

There are 190 million credit active people in the United States who have a charge account, car loan, student loan, or home mortgage. As those people pay their bills, most lenders report credit payment information to credit bureaus. So most of the information in your consumer credit report comes directly from the companies you do business with.

What Information Does a Credit Report Contain?

A consumer credit report contains four types of information: identifying information, credit information, public record information, and inquiries.

Identifying information includes:
• Your name
• Your current and previous addresses
• Your Social Security number
• Your year of birth
• Your current and previous employers
• If you’re married, your spouse’s name

Credit information includes credit accounts or loans you have with:
• Banks
• Retailers
• Credit card issuers
• Other lenders

Public record information includes any information that’s contained in state and county court records, like:
• Bankruptcies
• Tax liens
• Monetary judgments

Inquiries indicate to other credit granters that you have applied for new credit that could result in additional debt. Potential lenders view multiple recent inquiries on your credit report as a sign that you are overextending yourself.

(A credit risk score may also be included when your report is provided to a credit grantor, although it is not included on consumer review reports. The ways to calculate and use a credit score vary widely, so a score has little meaning outside of the context of a particular lender’s unique guidelines for use. Therefore, it is not included on consumer review reports.)


  1. Thank you for this informative and practical article on credit reporting.

  2. Montelongo says

    Thank you for the information, Do you have any idea how the credit score is calculated based on the items you mention in your article?


  3. Jeff Smith says

    Hey Mongo,

    35% = payment history
    30% = amount owed
    15% = length of history
    10% = new credit
    10% = type of credit

    Hope this helps!

  4. Mongo
    I am a 22 year veteran of the Real Estate business. Credit “Scoring” has changed drastically in my time. it is a very complicated equation however I do know the “concept” and the % that holds the most weight they look at is
    #1 the amount of credit ALL you creditors are Willing to lend you ie. your available balances or amount of available lines of credit compared to the amount you are actually using ie 4 credit cards with total available credit to you is $40,000 but in any one given month you use $3,000 and pay it off or pay it down. the most weight is given to this. they look at how many other creditors have taken a risk on you AND how responsible you are with actually using it. Installment loans ie Mortgages and cars hold a high regard. Advise always take or request raising the available credit extended to you and don’t use it, your credit score will certainly go up. that’s why not having any cedit or paying off everything and closing accounts paying off cars confuses most people but the entity giving you money doesn’t want to make the decision all on their own they will look at other creditors and follow suit. Hope this helps it’s always been a great mystery! Good Luck TLC

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