Understanding how to read and comprehend your credit report vital because the information contained in it is a significant factor in determining the credit score.
A good credit score will make it easier to obtain financing for major purchases such as a new vehicle, mortgage, or credit card. It is therefore advisable to be familiar with the various kinds of information in your credit report.
Understanding your credit report will assist you in identifying problem areas and help you improve your credit score if you have poor credit. When the negative items that appear on your credit report are replaced by positive items, you’ll be able to see your credit scores start to rise.
The Three Major Credit Reporting Agencies
Equifax, Experian, and TransUnion are the biggest and most reliable credit report agencies, also known as credit bureaus, across the United States. Each credit bureau has its own credit reports.
Most lenders utilize at least one or all of them to determine the credit score of your client. While each credit bureau may have slight differences in the way they report, a majority of the information they provide on their credit reports is the same.
Every credit bureau’s credit report structure contains a variety of key types of information that are classified as positive or negative.
These categories include the account summary information as well as the history of your account, credit inquiries public records, and consumer statements. Let’s examine each to show you how to understand a credit report and, more important, how to make use of it to your advantage.
How do you get access to your credit report?
Before you learn to understand a credit report you’ll need to first obtain an exact copy. You are entitled to a complimentary credit report every year for 12 months. The quickest and easiest way to get your free credit report is to visit AnnualCreditReport.com. It’s the sole website that all three credit bureaus use.
Once you’re on the website begin by entering some basic details about yourself. You’ll then need to go through an individual identity verification process at each bureau.
If you’d like, start by requesting only one or two reports, and keeping the rest for later. This can be useful when you want to keep track of what information you have on your credit report changes over time.
Applying for a Loan?
If you’re planning to make an application for a major loan, you may want to review the three credit reports at the same time to make sure your information is correct and current.
Another thing to consider when you’re planning to apply for credit is the time frame for a dispute. If you obtain your credit report free and the credit bureaus are not required to wait up to 45 calendar days to conduct an investigation. If you’re in a hurry, think about buying your credit reports since they have only 30 days to address disputes.
Confirming Your Identity
To request a credit report, you’ll be required to answer a set of questions about yourself that you must be able to answer. These may include confirmation of your previous official names and addresses as well as financial inquiries like your credit card accounts hold and the date that certain accounts were created. After you’ve completed the procedure, you’ll be able to review and download your credit report.
If, for whatever reason, you’re not able to complete the questionnaire correctly If you don’t know the answers, you can choose to print the questionnaire and request a copy your credit report through regular mail. You can also take advantage of this option for those who prefer printed copies over digital copies.
What is the information on your credit report?
Now you’ve learned how to access your credit report from Equifax, Experian, and TransUnion Let’s take a look at the data you’ll find. A portion of it is simple and easy to grasp however, other areas require a bit more research. The best part is that it’s only necessary to know this information at a time.
Once you’ve figured it out once you’ve figured it out, you’ll be able quickly look over your credit score and know the information being reported without much effort in the future. This information will help you enhance your credit score as well as assist in making better decision-making regarding your finances in the near future. Regularly reviewing your credit reports will also help you detect signs of possible identity theft.
Personal Information
The basic information on your credit report is simple to comprehend, but you should still scrutinize the information carefully to ensure that they are accurate and consistent.
There you will find information like your name, previous legal names, current and former addresses, birth date, Social Security number. You’ll also find your previous and present employers, spouse’s information, and whether you have a joint report or not.
You might or may not have any data in this section based on the frequency you’ve applied for credit.
For instance the employer you work for doesn’t provide any information about you. Likewise, this section isn’t intended to function as an application for a resume. In contrast, lenders could disclose your employment details from a loan application that you’ve submitted.
Personal information doesn’t affect your credit score. It’s used to prove your identity if required. Verify that all information is correct But don’t be stressed particularly if you notice something similar to a previous job that is not there.
Account Summary
This is a list of all your obligations and where you stand with each one. For instance, if you have an outstanding mortgage, you’ll be able to see your loan balance, initial loan amount, as well as the of your balances are.
You’ll be able to see your total balance due for all credit cards, as well being aware of the amount of credit you have available. You’ll also find your credit limits and debt-to-credit ratio as well as the monthly payment amount and the amount of credit accounts that have an outstanding balance.
Depending on the time when your credit report was compiled there could be an outstanding credit card balance, even when you have paid off all of your credit cards in full every month. The reason is that credit reports provide an overview of your credit score at a certain date.
If your report is pulled following the billing cycle is over however, before you’ve paid for your purchase, the entire balance will be shown. This means that you can have a balance displayed on your credit report, even when you pay your card regularly.
To prevent the possibility of this happening, you should consider making your payment to your credit card biweekly or even every week. This way, you will never have more than a week or two worth of credit card charges in your credit report. If you decide to reserve your credit card for major purchases, you should pay it off as fast as you can instead of waiting until the next due date for your statement.
If you’re currently applying for an loan, you might require improving your credit score, or decrease your debt-to-income ratio to meet the eligibility requirements. You could ask your lender to carry out an quick rescore after you have paid off your account balances so that you be eligible for the loan.
A quick rescore update your credit score with the most current information within a couple of business days, instead of the usual up to two months.
Account History
Based upon the length of your credit history this section could be quite long, yet it’s vitally important. Don’t let the length discourage you from examining these accounts with the aid of a fine-toothed comb.
Why? Your history of your account shows the years of individual monthly payments on all of your credit cards, from credit cards to loans.
Your payment history accounts for 35 percent of your credit score which is the biggest contributing factor. Therefore, you must do the necessary diligence to make sure all information is accurate in this area.
The details below are available under the section “Account History” on your credit report. The details might differ among the three credit bureaus that are major, however the general concept is identical for each.
Current Accounts
The first thing you’ll notice is the entry for all of your open accounts. The most important element of information you’ll see is the current status of your payments. In the ideal scenario, you’ll want your payment status to read “Pays As Agreed” because it means you’re current with all of your payments.
But, based on your past payment history, you may see codes that indicate one of these：
- he account is now current but was 30, 60, 90, or 120 days past-due at some point
- the account is now current but was previously in collections
- it’s currently in collections
- it had a paid collection
- or it is a charged off account
There are a variety of other options and you should take a look at a chart with an explanation of the code when you’re not sure of which payment status is.
Type of Account & Payment History
Each account has an overview of the account, which includes information like the kind of account, the highest credit limit, duration of term the date of opening, the actual balance, planned amount of payment and the actual amount of payment.
There, you’ll find a month-bymonth list of your past payments on the credit card or loan. The credit bureaus categorize every account as open, negative,or Closed.
Most negative accounts are taken off your credit reports within a period of seven to 10 years. But, closed accounts in good standing may remain on credit reports for an indefinite period of time.
Credit Inquiries
The term “credit inquiry” refers to an investigation into your credit history. credit inquiry is the report of your credit which indicates that you have applied for credit or insurance, or even financing. Each of these events triggers an organization to check your credit report, and also your credit score falls a couple of points each time.
If you only have two or three hard inquiries this will not have a significant impact on your credit score. If you have a lot of inquiries the damage could begin to pile up.
In addition, too many requests could make it appear that you are in a hurry to get credit and could discourage potential lenders. Therefore, it’s important to be cautious with the number of loan and credit card applications you make.
If you are looking for the most competitive rate on installment loans like auto loans, you might receive some leniency in regards to the impact that credit inquiries affect your credit score. If you make applications to several lenders in an extremely short time usually just a few weeks, hard inquiries typically be considered only one credit check in the calculation of your credit score. This means you can evaluate offers from various lenders without having to worry about the impact on your credit score.
Hard inquiries disappear from the credit reports within two years and usually only affect the credit score of a single year. However, you should verify the an accurate report in this section. If you discover an inquiry regarding the loan that you didn’t think of applying for, you may petition to get the item removed from your credit history.
There are also soft credit inquiries in your credit report. Soft inquiries don’t affect your credit scores at all.
Consumer Statement
You must be aware of the information found in the section on consumer statements since it is directly from you. If you file an inquiry with a credit bureau when the subsequent inquiry fails to resolve the issue, you can provide a statement that explains your perspective on the situation.
Typically, you’re permitted 100 words. This allows you to give lenders additional details. But, be careful not to overdo it by providing consumer statements. Too many could be the alarm even if that the situation (or cases) didn’t go as planned.
Public Records
The public records section is devoted to judgements, tax liens, bankruptcies and other records that are available on you at the county or state levels.
Any information that is that are listed on your credit report’s public records section could greatly impact your score on credit. They are typically in your credit file for seven to 10 years. Make sure all the information on your credit report is accurate. In the event that it isn’t, you’ll end up with unintentionally damaged your credit score.
What information isn’t listed in your credit report?
The most crucial points to be aware of about your credit score is that it doesn’t comprise the credit score.
It is your right and obligation to examine and, if necessary, challenge any inaccurate information that appears that appears on your credit reports. But, credit scores typically require you to purchase them separately, though you may be able to view yours for free by taking advantage of an offer from one of your bank or credit card accounts.
Your FICO Score
The FICO score is the most popular credit scoring model utilized by lenders. However, Experian, TransUnion, and Equifax have developed a famous credit scoring model known as the VantageScore to be able to compete with FICO.
The most current version of this software is VantageScore 3.0. Numerous websites provide no-cost educational credit scores however the algorithms aren’t as precise as the popular models. Because of this, the credit scores may differ significantly from the one your lender actually utilizes.
Keep in mind that your credit report directly impact your credit score however they are two distinct items. To gain more information about your credit score, start by examining your credit report in order to make sure that the information on it is correct.
Once you have a better understanding of the contents of your credit report, you might think about purchasing your credit score in order to assess where you are. This step will help you identify what factors affect your credit score in a positive and negative way and what areas you should work on.
