How to Read and Understand Your Credit Report

Credit reports are detailed documents that show how you’ve managed credit over time.

Both lenders and creditors provide information about accounts to the three credit bureaus. The data is then input into their system and compiled to create credit reports.

It’s important to understand your credit report for a few key reasons:

  • Lenders use credit scores to gauge creditworthiness. This determines if they will loan money to you and at what rate.
  • Your credit score is calculated from the information in your report.
  • Inaccuracies from reporting errors or outdated information can hurt your credit score.

How to Retrieve Your Credit Report

The easiest way to access your credit report is by visiting AnnualCreditReport.com. You can get one free report annually from each of the credit bureaus; Experian, Equifax, and TransUnion.

You can also receive a free copy of your credit report if:

  • You were recently denied for credit, insurance or employment. (Note that you must request a copy within 60 days of receiving the denial notice).
  • You’re unemployed and plan to look for work within 60 days, receiving welfare benefits, or are a victim of identity theft.

What’s On Your Credit Report

Identifying Information

This includes your name, address, social security number, date of birth, and employer. Although these items aren’t factored into your credit score, they are updated on your report when new information is provided to lenders and creditors.

Credit Accounts

In this section, you will find detailed information about each of your credit accounts or tradelines, including:

  • The creditor’s name.
  • The type of account (i.e credit card, auto loan, student loan, personal loan, mortgage).
  • The opening and closing date (if applicable) of the account.
  • The amount of the monthly payment.
  • The credit line or loan limit.
  • Payment history by month. Accounts with past or current delinquencies will be classified as negative.
  • Balance updates provided by creditors. It’s important to note that this figure may not accurately reflect what you actually owe since most creditors only send monthly updates to the credit bureaus. (Rapid rescoring is an option if you need balance information updated to qualify for a loan).

Credit Inquiries

You will find two types of inquiries listed:

  • Voluntary (or hard inquiries): these are requests for your credit report that are generated when you apply for credit. By submitting an application, you’re authorizing the creditor to obtain your credit report from one of the three credit bureaus. You could also receive a voluntary inquiry if you request a credit line increase and the creditor needs to review your credit profile to determine your eligibility.
  • Involuntary (or soft inquiries): these are requests for your credit report that are not initiated by you, and commonly occur as a result of pre-approval screenings from lenders. Involuntary inquires do not affect our credit score.

Credit inquiries, both voluntary and involuntary, remain on your credit report for two years. However, only voluntary inquiries impact your credit score by less than five points in most instances, notes myFICO. But if you submit several applications for credit in a short span of time, the impact could be much greater.

You should also know that voluntary inquiries resulting from rate-shopping in a 30-day period are only counted against you once. So, if you’re searching for the best deal on an auto loan and you submit several applications within this window, the inquiries will appear on your credit report but your score won’t take a huge hit.

Public Records

These include bankruptcies, foreclosures, civil suits, wage attachments, liens, and judgments. Most public records stay on your credit report for seven years, with the exception of tax liens that can stay indefinitely if they remain unpaid. Bankruptcies can also remain on your report for up to 10 years.

Collection Accounts

Accounts that are written off as bad debts by the creditor and turned over to collection agencies appear here. You may also notice old medical bills and delinquent accounts from service providers, like phone, utility, and cable companies, that have been placed with collection agencies.

If you’ve already paid the balance in full or settled the account, a status update will also appear on your credit report. You should also know that collection accounts, whether paid or unpaid, remain on your credit report for seven years.

Personal Statements

Did you file a dispute in the past, but the credit bureaus didn’t rule in your favor? You have the option to reply with a statement (100 words or less) that tells your side of the story. The statement will also be included on your credit report.

How to Handle Errors On Your Credit Report

Some common errors to be on the lookout for include:

  • Inaccurate identifying information
  • Transposed account numbers
  • Incorrect account balances
  • Payment history discrepancies

You may also notice accounts that you have no prior knowledge of if you’re a victim of identity theft.

Either way, filing a dispute is the first step in getting the issues rectified.

The Dispute Process

Step 1: Draft up a dispute letter to the credit bureaus.

Your letter should include the following:

  • Your name and address
  • The item in dispute
  • Why you dispute the item
  • A statement asking for the removal of the item

The Federal Trade Commission has a handy template right over here to help you get started.

Step 2: Send the letter to the credit bureaus.

Also, include a copy of your credit report with the item in question highlighted along with any supporting documentation in the package. Be sure to send via certified mail with signature confirmation so you’ll know when the package arrives.

Step 3: Notify the creditor or lender of your dispute.

You should also send copies of the dispute letter and any supporting documentation to the information provider. It’s a good idea to call ahead of time and request their address to make sure your documents land in the correct hands.

What Happens Next?

Upon receipt, the credit bureau has 30 days to investigate and respond to your dispute. Otherwise, they have to remove the item in question from your credit report, unless the information provider requests additional information to research your claim. In this case, it may take up to 90 days to hear back regarding the dispute.

When they respond to your dispute, the credit bureau will also include a copy of your updated credit report.

Quick note: Experian only accepts online disputes, but you also have the option to do the same with Equifax and TransUnion. However, filing online waives your right to re-dispute the item in question if the credit bureau does not rule in your favor.

When Are Credit Reports Updated?

Credit bureaus generate reports on demand. But if you subscribe to a credit monitoring service, you may receive updated copies on a monthly basis.

Where Can I Find My Credit Score?

According to myFICO, 90 percent of lenders use the FICO score to make credit decisions. Your credit report from AnnualCreditReport.com won’t include your FICO score, but you can pay a nominal fee to view it.

Another option is to view variations of your FICO score, like the Vantage 3.0 score, from free credit monitoring sites. (Note: I didn’t include examples here because I wasn’t sure if you had brand partnerships. Let me know how to proceed).

Help! My Credit Reports Aren’t Identical

When reviewing your reports from the three bureaus, you may have noticed that the information present wasn’t the same across the board. As long as the data being reported is accurate, this shouldn’t necessarily be a cause for alarm because some lenders only report to one or two of the bureaus, notes Equifax.

Furthermore, the three credit reporting agencies are separate private entities. So, they don’t communicate with one another, which could result in isolated errors.

Can Anyone Access My Credit Report?

Absolutely not. In fact, the Fair Credit Report Act (FCRA) restricts access to credit reports. It also details situations where accessing credit reports is permissible. Only the following entities can view your credit report:

  • Creditors and lenders if you’re applying for credit or requesting a credit limit increase. They may occasionally review your credit report to help manage risk, notes Experian.
  • Employers if you’re seeking a position with their company and grant permission in writing
  • Insurance companies to aid in managing risk.
  • Government entities

Also, keep in mind that your reports may be accessible without express consent if there’s a court order or subpoena by a federal grand jury.

How Often Should You Check Your Credit Report?

While there’s no concrete rule that dictates how often you should check your credit report, it’s best to review it often to ensure the contents are accurate. Checking your report regularly also minimizes the risk of suffering from financial ruin as a result of identity theft as you’ll be able to detect fraudulent activity sooner than later.

Reviewing your credit report doesn’t have to be difficult. Once you gain an understanding of what the contents mean, you’ll be able to take control of your credit health and ultimately boost your credit score.

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