For most people who rely on credit, their history when it comes to their borrowing as well as paying habits matters. They matter because credit institutions rely a lot on such information in order to determine a person’s creditworthiness. And such credit institutions can only do so by evaluating one’s credit report.

Credit report or credit history is a record of a person’s or even a company’s past actions when it comes to borrowing and repaying of debts and loans as well as information about late payments, bankruptcies and other loan defaults. A credit report shows an individual’s reputation in terms of handling past credits. How well this reputation is preserved in a credit report, the better the chances of an individual getting approved on a loan or new credit in the future.

A credit report is created the first time an individual applies for credit from an institution, bank or credit card company. The information on his or her application is passed on to a credit bureau that handles the task of keeping, updating and releasing those reports when the individual or the different credit institutions request them.

The credit report helps a company engaged in offering financing options to people to gauge how credit worthy a certain individual really is. This will allow them to approve credit to only those who have preserved a good credit reputation. After all, lending is a business and such institutions do their best to ensure that their investment (in form of credit) does not go to waste.

Credit reports help determine a person’s credit rating. Although it might differ from country to country, the factors that are used to determine the rating are generally similar.

Payment record. If payments on debts are handed out regularly and on time, it positively affects the credit rating. On the other hand, a record reflecting overdue payment bills would likely lower one’s credit rating.

Debt to earnings ratio. Most lenders would want to ensure that their borrowers do not live way beyond their means so that they can be sure that borrowers still have the capacity to pay future debts. Normally, lenders look for individual monthly credit payments that do not exceed 15 percent of an individual’s after tax income.

Job stability. Lending institutions also look highly on individual’s with long employment tenure at a certain company as a sign of stability which can have a positive effect on one’s credit rating. Jumping from one job to another in a short span of time may greatly be seen as instability, giving lenders doubts of entrusting one with credit, therefore may greatly affect credit rating.

There are other factors that might affect one’s credit rating that may be reflected in the credit report. Knowing how such factors may affect one’s credit rating and how to interpret such information can greatly help an individual improve his or her own credit report.