Your credit reports are essential for understanding your finances. Typically, they list your open credit card accounts, loan balances, and any financial missteps. So, it is best to review these reports regularly. After all, the information contained in these reports is the same information that banks and lenders use when determining whether you qualify for loans and at what interest rates.

If you're wondering why your application for mortgage loans faces rejection or why you only qualify for credit cards with sky-high interest rates, the answers might lie in your three credit reports.
Fortunately, you can access your credit reports on an annual basis.

Acquiring Your Credit Report

Three credit bureaus compile credit reports on you, TransUnion, Experian, and Equifax. The reports kept by each of these credit bureaus might vary, so it's a bright idea to review all three reports at least once every year.
The good news is that you are entitled to one free copy of each of your three credit reports once a year under federal law. You can access these free copies at the Web site, AnnualCreditReport.com.

If you want to review your credit reports more than once a year, you'll have to pay each of the credit bureaus for your extra copies, usually at a price of around $9.99 for each report.

Reading Your Credit Report

Once you have your credit reports, it's time to read them. The information will explain why lenders consider you a good or bad lending risk.

Each of your credit reports will start with basic information about you, and it is essential to make sure that the data is correct. This basic identifying information will include:

• Your name.
• Your social security number.
• Your previous and current addresses.
• Your date of birth.
• Your phone numbers.
• Your employer's name.

Credit History

Next comes a more critical part of the reports, your credit history. This section lists any open lines of credit and loans in your name. For example, if you have a mortgage, it will be listed on the report. So will credit-card accounts, car loans, and student loans.

This section will also include the amounts of money you owe, whether to your mortgage lender or your credit card companies, how much credit is available to you, and how well you've managed your loans and credit.

This last part is essential: Your credit report will list whether you often make your payments two weeks late. It will also list whether you've missed payments completely. These financial mistakes will lower your credit score.

Public Records

Next comes the public records section of your credit report. Ideally, this part of your report is blank because it lists negative financial judgments as bankruptcies and foreclosures. These negative judgments can damage your credit score even more severely than late or missed payments.

Inquiries

The final section of the credit report is the inquiries section. The inquiries section lists everyone who has asked to see your credit report. So, for instance, if you call TransUnion and ask for a copy of your report, it will appear in the inquiries section. Likewise, if your local credit union asks for your report before agreeing to provide you with a car loan, that inquiry will be in the report, too.

Correcting Errors

It's important to quickly correct any errors that you discover in your credit reports. Remember, the information on your credit report ends up compiling your credit score. And if this score is low, banks and lenders either won't lend you money, or they'll do so only while charging you higher interest rates.

If you remove errors from your reports -- maybe you closed that open credit-card account three years ago, or perhaps you never did miss that car payment listed as delinquent four months ago -- it will have a positive impact on your score.

To remove an error, though, you must correct it in writing and send that information directly to the offending credit bureau. Unfortunately, you can't remove errors through e-mail or a phone call.

Takeaway

A credit report might seem like an intimidating document. But once you understand its parts, this report provides you with a good roadmap of how lenders and banks see you.