In the United States, there are three main consumer credit reporting bureaus: Equifax, TransUnion and Experian. These bureaus use similar methods to issue credit scores to consumers and these credit scores define creditworthiness. They base these credit scores on pieces of information such as outstanding debts, missed payments, timely payments, length of credit history and types of credit. While the credit score itself is the main thing that potential lenders look at when determining whether or not you can take on a loan or line of credit, your credit report is the list of items contributing to that score. It is important to learn how to read and analyze your credit report in order to be able to recognize and address incorrect items. While the formats used by the three main bureaus may be slightly different, they all follow the same basic structure. Read on to find out how to read a credit report.
Getting Your Reports
Before you can read your credit reports, you have to gain access to them. The U.S. federal government requires the credit bureaus to give you free access to your credit report once per year.
The first aspect of your credit report is your personal information. This includes your name, different names you have gone by, places where you have recently lived, your date of birth, your spouse's name, government identification numbers, etc. All of this information is important because the credit bureaus must ensure that the items on your credit report are for the right person. If anything in this field is outdated or incorrect, you should report it to the credit bureau immediately.
Consumer Credit Accounts
This is the central part of your credit report. It shows various credit accounts that you hold and gives a history of your payments made to these accounts. For instance, every home loan, auto loan, student loan or credit card you have will most likely be displayed in this area. These may be placed into five basic groups: mortgage loans, revolving lines of credit, installment loans, collections and other accounts. Credit cards (but not debit cards or check cards) show up under revolving lines of credit. Auto loans and student loans are both installment loans. Collections are debts held by collections agencies. Collections agencies purchase delinquent debts you may have from other parties. If you have an account that is delinquent but has not yet gone to collections, it will probably be marked as delinquent. Study the consumer credit accounts section of your credit report carefully. Look particularly closely at the names of your creditors. If you do not recognize a particular credit account, it may be the product of scam or fraud – especially if it is delinquent.
Bankruptcy And Court Judgments
This section lists any bankruptcies or court judgments that apply to you. If you have gone through bankruptcy within the past seven years, this will show up on your credit report and there is not much you can do about it. Having a bankruptcy on your report can make it difficult to find both credit and employment. If someone has filed a civil suit against you and won, this may show up on your credit report as well. If you have fully paid the judgment, it should appear as “satisfied” on your credit report. Like bankruptcies, satisfied judgments are removed after seven years. These are both issues that credit bureaus keep up with because having a bankruptcy or having an excessive number of civil suits standing against you are things that potential creditors want to know about.
Lenders and creditors are leery about issuing loans or lines of credit to people who are frequently making inquiries to other lenders and creditors. For this reason, the credit bureaus keep track of such inquiries, regardless of whether or not they result in an extension of credit. However, not all such inquiries actually do get recorded and even when they do, the effect of each one is usually small and temporary. Still, it is important to look at this section carefully. If someone is trying to use your identity to apply for loans, the inquiries that person makes will show up here. Again, the name of the lending institution will be recorded as will the date on which the inquiry was made. If you see something that you do not recognize, you may want to take note of it and investigate further.
Your credit score is the numerical amalgamation of all of the information on your credit report. A score of 600 or above is generally seen as being decent, and a score of 700 or higher usually means that you will not have trouble getting loans or lines of credit as long as you have a verifiable income stream. Free credit report sources usually do not provide your score. To get this, you may have to pay for it.
If you find an item on your credit report that you feel is incorrect, report it to the credit bureau. If you are viewing your report online, you may be able to do this directly through the interface by clicking on the item and following your credit bureau's instructions. When you dispute an item, the credit bureau investigates with the creditor and requires the creditor to provide some sort of verification of the debt. If the creditor cannot provide adequate verification, the credit bureau is legally required to remove the item from your credit report. Disputing items in this way can improve your financial situation and repair a less-than-ideal credit score – which is one of the main reasons for which to consult your credit report.
The rule of thumb is that you should check your credit reports at least once per year. This will help you to spot any inaccuracies or fraud in your credit history. Use the information above to help you closely scan your credit reports.