Your Credit Report May Be More Important Than Your Credit Score

When people think about their credit, they often think only of the number that corresponds to their credit score. However, a credit score is simply a bare-bone representation of the information contained in another, potentially more important part of a person's credit profile: his or her credit report.

Context Matters

A credit report can be even more important than a person's credit score because it provides context for the credit score and shows how an individual got to a particular point in their credit history, rather than just a snapshot of where the individual is at a particular moment in time. Among other things, a credit report provides details about a person's accounts, how much credit the person has available and whether he or she makes payments on time.

Lenders use the information from a person's credit report to weigh the potential risks of granting him or her additional credit, such as a car loan or home mortgage. Insurers, housing officials, potential employers and others also use a person's credit background to guide them in their decisions about whether to do business with an applicant and what terms to require if they do so.

The outcome of these important decisions can vary greatly, even between applicants with identical credit scores, on the basis of the information contained in their credit reports. For instance, one applicant's credit report may show a recent pattern of late and missed payments that have negatively affected his or her credit score. Meanwhile, another applicant with an identical credit score may be granted a loan because his or her credit report shows a strong pattern of on-time payments that have improved a once-poor credit score.

Using and Building Credit After Bankruptcy

For people who are consistently overwhelmed by their debts and unable to keep up with the payments, bankruptcy may offer a way out. After completing the bankruptcy process, most or all of a borrower's debts are discharged, meaning that the lender may no longer attempt to collect payment on them. Although bankruptcy will negatively affect a person's credit score and will be reported on his or her credit report, it can also provide borrowers with a much-needed fresh start and allow them the opportunity to rebuild their credit from the ground up. With patience and perseverance, many people can and do recover their good credit after bankruptcy.

Borrowing wisely and making payments on time is critical to building and maintaining healthy credit, especially after bankruptcy. People who wish to improve their credit scores and credit reports should focus on paying their bills on time, since late or missed payments will be negatively reflected in a person's credit profile. While using credit is an important part of rebuilding credit after bankruptcy, it is also important not to borrow in excess. Not only can excessive borrowing make repayment difficult, but borrowers can also negatively affect their credit by having a high debt-to-credit ratio. People who are trying to improve their credit after bankruptcy are generally advised to keep their debts below 35 percent of their available credit limits.

Talk to a Lawyer

To learn more about bankruptcy and how it can help some borrowers get out of debt and make a fresh financial start, contact a knowledgeable bankruptcy attorney.