It’s not difficult to obtain your credit report. But once you get it, how are you supposed to understand it? There are so many numbers, acronyms, vernacular and jargon – it’s intimidating to say the least. The good news is, while it looks confusing, your credit report is actually far easier to read than you think.
First, it’s important to understand who does what in the credit world. And a few of the biggest players are the credit bureaus- these folks create your credit report. There are three such companies in the United States; Experian, TransUnion and Equifax. These financial institutions collect credit information about you from people you transact business with. That includes anyone you ever owed money to; banks, mortgage companies, retail establishments, the government, individuals etc.
You have the right to ask those three companies to send you a free copy of your report once a year and they must comply under federal law. Just make sure you get a copy of all of your reports at once. That’s because there could be an error on one report while the other could be clean as a whistle. That happens all the time because there is no consistency in credit reporting. In fact your creditors decide which of the three bureaus they report to – if at all.
The Four Sections Of Your Credit Report
It’s going to be much easier for you to read your credit report if you first understand the big picture. Here are the four sections of your report:
- Identifying Information. Review this section to make sure it is precise. Here you’ll find your name, address, Social Security and date of birth. Depending on which bureau’s report you are looking at you may also see your telephone numbers, driver license numbers and the name of your spouse and employer as well.This report flows very easily. The only important point to shine a light on is the File Number. If you do find a discrepancy, you’ll need to reference your file number when you contact the bureau so they can correct the error.
Credit History. The next section contains your credit history with individual accounts. Sometimes these are called trade lines. That’s just jargon, don’t let it bother you. Each entry will list the creditor’s name and your account number or some short version of it.If you have more than one account with a creditor there will be a “trade line” for each of those accounts. In this section, the report will identify:
- What kind of credit this is (credit card, mortgage, department store card, etc.)
- The names of all the people who are on the account besides you.
- The total amount owed
- The highest balance owed
- Monthly payments
- Current status (open, inactive, closed, paid off, etc)
- Any problems regarding your payment history
At first glance, the “Payment History” chart looks daunting but don’t sweat it. It just shows whether or not you made at least your minimum payment during each month throughout the years.
- Public Records and Collections. Hopefully you won’t find anything in this section. That’s because an entry in public records means you’ve had a bankruptcy, judgment, tax lien or item that went to collection (even if you later paid it off). Any of these items are enough to torpedo your credit score. If you do have listing here, all is not lost. Even these kinds of items can be corrected and fixed but it does require more effort.The good news is that bankruptcies “only” stay on your report for 10 years and charge-offs and collections are only on your report for seven years.
Credit Inquiries. This is the last section. It displays all the creditors who have seen your credit report. That means if you request your own credit report, your inquiry shows up as well.Many people think that inquiries always ding your credit score but that’s not the case. You have to differentiate between hard and soft inquiries. Hard inquiries do count against you while soft inquires usually don’t.
When you fill out a credit application, that generates a hard inquiry. Too many of those and it tells the credit bureau that you may be trying to get more credit than you can really handle. They make them think you might be getting desperate which makes you a risk. So too many hard inquiries, especially in a short period of time, are definitely a red flag and do hurt your scoring.
Soft inquiries on the other hand come from companies who want to look over your credit history without your consent or knowledge. These soft inquiries are done by companies that are thinking about sending you a credit card offer, would-be employers, or current creditors making sure you are still a good risk. These soft inquiries don’t count on your credit score – not to worry.
If you find a mistake on your credit report, don’t be surprised. According to a 2013 study, 20% of all credit reports contain mistakes. Most of those are clerical and don’t matter much. But 1 in every 20 credit reports have errors so large that it hurts the consumer.
If after reading your credit report you spot an error, get it cleaned up. Start by contacting the credit bureau and/or lodging a complaint with the Consumer Financial Protection Bureau. If that doesn’t work, it may be time to take it to the next level.
Having the best credit report possible starts by getting a copy of your report and understanding what you are looking at.
When was the last time you checked your credit? Did you find any errors? How did you resolve the issue?