When you apply for a credit card or loan, the financial lender will automatically examine your credit report. It will then formulate a credit score for you and either accept or decline your loan or credit card application based on that score. So what is a credit report and how do you find out what yours says?

Whenever you pay your bills or repay loans, the Credit Bureau is essentially watching you. The credit you have on hand, the monthly debts you've accrued, and other miscellaneous financial information, is all collected by Credit Bureaus. Even your record for paying off your Sears credit card is on file! The bureaus sell this information to financial institutions, which use it to determine if you are a good candidate for a credit card or loan.

Merchants have always kept tabs on their customers' credit lines, and as early as the 1800's organizations were collecting this valuable information from merchants and then sharing them with lenders. Unfortunately, only the negative was ever reported and personal information was hardly off-limits. Moreover, customers had no idea what information was exchanged, as they could not obtain these credit reports! By the 1830's, third-party collection agencies were finally established and they eventually evolved into what we now know as Credit Bureaus; the collected information was now more holistic, less intrusive, and it gradually became public domain.

Information on your credit report consists of personal identity information, credit history, public records, a list of all the other institutions that have requested the report, and a summary of any disputes. Your race, religion, heath, income, driving records, amount of money in the bank account, and criminal records are not included in the report.

After a lending institution looks over your report, it will then give you a credit score. There are different calculations for credit scores. Most lenders use a method that summarizes your credit history into a number from 300 to 850. The higher score you get, the more likely you are to qualify for premier credit cards and substantial loans, as you are deemed a low risk. Your score will affect what credit cards and loans you can successfully achieve, the interest rate that is attached to them, as well as your chances at obtaining a car or house, etc. Sometimes your insurance rates can even be affected. So it is very important!

You can find out your credit report by ordering it online. If it's not an impressive report, you can work on reestablishing it with a secured credit card or more moderate loan of some sort that you work to pay off in a timely manner. Also, there might be errors in your report and you may find that simply correcting them drastically improves your standing!

Closing old credit cards will not improve your standing however. In fact, the longer you've stuck to an account, the better. As well, try to deter inquiries into your report - the more inquiries, the lower your score! In general, reduce your balances, pay your bills on time, and don't open any new accounts. This will all help you improve your credit report.