You may have heard about credit reports for most or all of your adult life, but you may not be certain what this is or how to read a credit report exactly. More than that, you may not be certain why this information even matters or how it is relevant to your life. The reality is that you should know how to read a credit report, and you should read your credit report regularly to ensure that all information being reported about you is accurate.
What Is a Credit Report and How to Get It
Before you learn how to read a credit report, you need to know what this report is and how to find it. There are three primary credit reporting agencies, and each of these agencies gather financial and credit details about you from various sources. This includes your service providers, courts, credit card companies, lenders, mortgage companies and more. A credit report may be reviewed by a future employer, a future landlord, a credit card company, a bank when you apply for a loan, a utility company, an insurance provider and more. You can see that your credit rating has far-reaching effects on your life.
The best way to obtain a free copy of your credit report is to contact the three bureaus directly. The three primary bureaus are legally required to give you a free copy of the report once per year, but they may charge you if you request copies more frequently than that. In addition, the data showing on these three reports may not match. Not all creditors are required to report data to the same bureaus. This creates variations in scores as well as data that is shown on the reports.
What Is On Your Credit Report & How to Read it
As soon as you get a copy of your credit report, you may then wonder how to read a credit report. After all, a typical credit report may be between seven and 14 pages long, and some credit reports may be much longer than this. If you are married, you typically will have a joint credit report with your spouse, and your credit report may easily be 20 pages or longer in this case. The following is a description of what you will find on your credit report.
1. Report Summary
When you learn how to read a credit report, your attention may initially turn to the report summary, and the summary is usually at the very top of the report or at the end of the document. This is usually the area that will show your credit score as well as all pertinent details about how this score was generated. While this information is important, it may be more important to read through each section of the report and to ensure that all of the details being reported about you are accurate. After all, a minor error in your credit report could result in a significant scoring issue.
2. Personal Information
Your personal information lists all of the names that you go by or that are associated with your tax ID number. Your tax ID number, birth date and previous mailing or residential may also be listed. In some case, previous employers that you have listed on credit or loan applications in the past may also be listed.
3. Credit History
Your credit history is the longest section of the credit report in most cases. This includes a separate entry for each active or closed account you have had for the past seven to ten years. Late payments and the dates of those late payments, outstanding balances, high and low account balances, account numbers and other relevant details are listed. Remember that the balances and other financial data may not be correct as of today. In fact, it is usually lagging behind by a few weeks. Therefore, your most recent payments may not be reflected on your credit report.
Under the credit history section, you may find information about charge-offs or credit negotiations. Keep in mind that even though both parties may have agreed to altered repayment terms, this shows as a negative item on your credit history because you did not repay the full amount of funds as you originally agreed to.
4. Public Records
Any public records that are filed for your tax ID number will also be listed on your credit report. This may include civil judgments, tax liens, vendor liens and more. Both paid and unpaid records will be listed, and the amount of the judgment or lien will also be listed. If you have a bankruptcy, such as a Chapter 7, this may stay on your credit report under this section for up to ten years. Some lenders may require you to pay off unpaid accounts in this section before you open a new account even if the public record is seemingly unrelated to your new loan or credit inquiry.
5. Credit Inquiries
The number of recent credit inquiries on your account can also impact your credit rating. Shopping around for a new loan to various lenders is to be expected, but an excessive number of hard inquiries within a short period of time can hurt your credit score. It may be best to get as firm of a quote as possible before committing to a hard credit inquiry.
Many people find errors on their credit report from time to time, and it is imperative that you correct these errors as soon as possible. In many cases, they are simply clerical or data entry errors rather than dramatic and complicated disputes. To dispute an item on your credit report, you need to prepare a written statement to both your creditor and the credit reporting agency. It should clearly detail all information that you are disputing, and it should clearly state what you believe the correct information should be on your credit report. More than that, you must provide proof to back up your statement. For example, if you said that a late payment showing on your credit report last June was made in error, it may be helpful to provide proof of payment for your May, June and July billing statements for that account.
It can take several weeks for your request to be processed by the creditor as well as by the credit reporting agency. In addition, it may take a few more weeks for the error to be updated on your credit report. In most cases, you will receive a written response indicating the outcome.
Knowing how to read a credit report is important because it enables you to determine quickly and easily if an error is being report about you that puts you at a disadvantage. In addition, when you know how to read a credit report, you may be able to more easily see why your credit rating may be lower than you would like it to be and what you can do about it. If you have not reviewed your credit report from each of the three credit bureaus within the last year, now is the ideal time to reach out to the bureaus and request your copy. Remember to set a reminder your calendar to repeat this important financial task each year going forward as well.