How to Read a Credit Report

What is a consumer credit report?
Who sees my credit report?
What information is found on my credit report?

We are here to answer these questions for you in this blog which will highlight the critical aspects of a credit report and will let you know what to look out for when reviewing your own report. A credit report is like a report card, but for your credit history. This report allows lenders to assess your risk, the probability you will pay back their loan, and determine if you are an ideal candidate credit. In your report, you will find your personal information to identify you, payment history, credit limits, and account balances.

Credit reports can often be very confusing to those whose knowledge of the topic is minimal as mine once was. There are all sorts of things in there that will leave you confused and unable to confidently review and dispute anything on your report. So you have to educate yourself and understand what is on your credit report before you can determine if things need fixing.

The first step is to order your credit reports by phone or regular mail from the three credit bureaus (Equifax, Transunion, and Experian). It is worth noting that these three agencies work independently of each other and will, therefore, have slightly different evaluations of yourself. Everyone is afforded one free credit report from each credit bureau once a year. The credit reports will not contain your FICO scores, but they will provide you extensive insight on your credit file. If you want your FICO scores included, you must pay an additional fee.

You should never request your credit reports or dispute incorrect items online. The credit bureaus have been known to sneak into their terms and conditions that by asking your reports or disputing online you will be waiving your rights to arbitration, your day in court if you needed to sue them. You will also not be able to participate in any class action lawsuit against them as well. For more information on this topic, you may order our free Ebook from our website.

a man reading a credit report

The Basics of Reading a Consumer Credit Report

Once you receive your credit reports, you might be surprised how many pages one report entails. Each page signifies a different component of what makes up your credit score with some elements having much more impact than others. These components range from your personal information to the nitty-gritty credit account information that is full of a bunch of terms you have probably never heard of before, which is why you are reading this blog. The next pages will contain information on all your credit accounts.

This includes your accounts in good standing, your negative accounts and your closed accounts (whether by you or the creditor). These pages make up 100% of your FICO score, which is broken down into five factors. Like I said, this score isn’t included in your free report, but a careful evaluation of these pages will give you a good understanding of where your FICO score stands if you chose not to pay to get your score.

So first, you will find your Personal Information such as your name, address, and place of employment which is all used to identify you. You may also see your previous residents and employment history, which is just another way to identify and keep track of you.

There is also a section that contains the various aliases that you will want to double check because if there are any false aliases that carry negative information you should dispute it to get it removed and potentially raise your credit score. This is the simple and most straightforward section of your credit report, but you still want to read over everything to make sure there are no errors that are senselessly bringing your score down.

Secondly, you will find your Account Information, which happens to be the bulk of the information in your credit report. This includes each and every one of your credit accounts and how you have paid them. Each one contains an abundance of information; including an overview of each account. Such as the name of the financial institution, your account number (sometimes scrambled or shortened for privacy), the type of account (revolving, education, or auto loan), terms of repayment (installment loans include the number of payments), as well as the date the account was opened is used to determine the age of your account when calculating your FICO score.

High balance is the highest amount ever charged on the credit card (for installment loans this is the original loan amount).

Recent balance is the amount owed at the exact time the data was collected, account status is the current state of the account (payments are current, past due, or charged off),

Account history indicates monthly payment status since the time your account was established, and the last reported is the last time the data on your credit report was updated by your creditor.

You have to remember that these reports are compiled by computer, and just like humans, they make mistakes too. 67% of credit reports have errors, you just need to look carefully, and hopefully, you have kept good records to cross-reference your credit report and match up all of the account balances, dates, make sure if you had something deleted that it was actually removed, or even just the spelling of your name.

Furthermore, you will find the Public Records or Potentially Negative Items section of your credit report. This section contains information like bankruptcies, judgments, tax liens, and court records, which will all significantly impact your credit score. Public records are usually not easy to get removed from your credit report because you are dealing with the courts, but it can be done. Depending on the type of account, public records can stay on your credit report for 7-10 years, so be very wary of allowing these things to make their way onto your report. Don’t be confused though, you will not find any criminal arrests or convictions, just negative financial information. If you are looking to get a public record removed from your report, you have two options.

You can either go to the court of record and try to get the record expunged which is rather complicated and costly, or you can try to just remove the record from your credit report which will obviously still leave the public record on your personal file and may cause future issues. Either option is going to be an uphill battle, but it can be done so make sure you have all of your information and records with you to match it against the court’s records in case of any discrepancies that will help you out.

Finally, you will find the Credit Inquiries or Requests section of your credit report. This section lists every party who has accessed your credit report in the past 2 years, but depending on whether you are pulling your report or a lender, this section will be a little different. If a lender is pulling your report, they will only be able to see hard inquiries. These are inquiries made by lenders to approve a credit application such as a car dealership running your credit score to determine creditworthiness for a loan.

If you are pulling your report, you will be able to see these hard inquiries as well as soft inquiries. These are inquiries that do not harm your credit score, such as you get your free credit report once a year. There is also something called rate shopping, which is when you are looking around for the best loan and causing multiple inquiries to your credit report in a short time. The scoring formula takes this into consideration and will group together all of these inquiries in a 30-day window into one single, so you aren’t taking such a hit to your credit score. Queries, however, don’t have a considerable effect on your credit score (usually won’t make more than a 5 point difference) only if you have a limited credit history, and these inquiries will stay on your file for 2 years, but will only profoundly affect you during the first 6 months.

The Differences Between a Consumer Credit Report and a Tri-Merge Credit Report

I also want to point out that there is a big difference between your consumer credit report and your tri-merge credit report. The tri-merge report is used for mortgages and is when a mortgage professional will pull your credit reports from all three credit bureaus, who have different scoring models, and take the median score from your three separate counts. When you go to pull your credit score you are removing the consumer credit report, but if a mortgage professional is pulling your report they will be using the tri-merge report that is more of a financial scoring model and a lot harder scoring wise.

So what this means is that your credit score when you check it will probably be a little off from what the tri-merge report will say you have. This happens because the consumer report is just a snapshot in time and will, for instance, only report the balance of a credit card at the time the report was pulled and may vary significantly from when a mortgage broker pulls it to see if you qualify for a loan.

The tri-merge credit report will only come into play when you are searching for a home, but it is never a bad idea to see what the credit agencies are reporting about you and to keep track of your score and credit health.

In conclusion, it is imperative to diligently review any of your credit reports and look out for anything that is negatively affecting your credit health. Like I said, computers make mistakes too, and it is up to you to find these mistakes and take charge because these mistakes can be the deciding factor of you getting a car or a home. Staying vigilant about your credit report is also a great way to proactively protect yourself against identity theft. Lastly, if you plan to make a major purchase soon order your credit reports at least 3-6 months in advance. This will allow some time to address and dispute issues and for the reports to be updated before your purchase.

Want more great information about your credit? Then why not read out the latest article about the factors that determine your FICO Score?

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