How to Read Your Credit Report
Whether your credit score is within a good range or not, it’s important to review your credit report periodically to understand how your score is being calculated and if there are any errors on your credit report.
We get it — it can take a while to improve your credit score. But, once you know what you need to work on, you’ll be in great shape to reach the credit score you’re aiming for.
Learn more about how to read your credit report, including a breakdown of each section and how you can dispute any errors or fraud you might find.
What Is a Credit Report?
A credit report is a breakdown of your credit history provided by one of the three major credit bureaus: TransUnion, Equifax or Experian. It shows the history of how you have managed your credit for the past 7 to 10 years to help lenders, landlords or insurance providers determine your risk.
How to Read Your Credit Report
There are six major categories of your credit report that influence your credit score. Although your credit report can vary in what information appears depending on the credit-reporting company used, it should always reflect what is true to your credit history.
Your personal information is used to correctly identify you, which includes:
- Date of birth
- Phone number
- Social Security number
- Employer history
- Consumer statements
You might notice that some of your information is outdated, such as your address, phone number, employer or maiden name, but it isn’t a cause for concern as long as you recognize it. You can file a dispute directly with the credit bureau your report originated from to update that information.
It’s more time sensitive if you see information that is incorrect as it could mean someone else is using your personal information on a fraudulent account. If that’s the case, you’ll want to immediately file a dispute with the reporting credit bureau and report identity theft as soon as you can.
A consumer statement is an optional section that you can add to your personal information section. Under The Fair Credit Reporting Act (FCRA), consumers can add a 100-word statement disputing the accuracy of an item on their credit report, but was not removed by the creditor. However, experts say that it won’t be taken into account, as lenders look at the concrete information.
Open and Closed Accounts
It’s important that the section of your credit report that reveals your open and closed accounts is correct. Confirm that your open accounts are still active and that your closed accounts were used in the past, but are no longer active. In your account section, there are three types of accounts that can appear on your credit report.
- Revolving account: A revolving account is an account that has an open-ended term with a credit limit, such as a credit card or home equity lines of credit (HELOC). You can typically find the total credit balance, total credit limit, date opened and/or closed for each account. This type of account typically requires a minimum monthly payment and charges interest if you carry a balance month-over-month.
- Installment account: An installment account is an account that has fixed payments. Your student loans, auto loans, mortgage loans and personal loans will fall into this bucket.
- Open credit: Although rare, an open credit account may appear in your account section if you have an account in which you can borrow up to a maximum account, but needs to be paid in full each month.
For each type of open or closed account, you can typically view more granular details such as your credit usage, payment status, payment history, account age, account details and creditor information. If you see something incorrect in this section, file a dispute as it could have major repercussions towards your credit score.
There are two types of inquiries — soft inquiries and hard inquiries that you may see on your credit report.
A soft inquiry, on the other hand, is a request from an entity or individual when they are trying to assess your credit, such as an employer running a background check. You will be the only one that can see a soft inquiry on your credit report and they will not affect your credit score.
A hard inquiry occurs when you apply for credit, whether it be a credit card or a loan, and the lender reviews your report to determine if they will approve it. A hard inquiry requires your approval and does affect your credit. Too many hard inquiries can be a cause of concern for lenders because it could mean that you are having a difficult time paying your bills and could potentially overspend. They stay on your report for just over two years and only temporarily negatively affect your credit score.
Derogatory marks are negative items that appear on your credit report such as missed payments or delinquency. These marks will typically stay on your credit report for 7 to 10 years and directly affect your credit score.
According to FICO, your payment history accounts for 35% of your credit score, so the more derogatory marks you have, the lower your credit score will be to reflect that. If you notice anything unfamiliar in this section, dispute it immediately.
The collections section of your credit report includes accounts that are significantly past due, therefore were turned over to an internal collection department or sold to a debt collection agency. These are seen as separate from the original credit card or personal loan account on your credit report and have a negative impact on your credit score.
If you have a collection on your credit report, it takes 7 years from the delinquency date for it to no longer appear on your report.
Public records are entries that appear if you didn’t pay your taxes, declared bankruptcy, lose your home through foreclosure or owe debt through your local, state or federal court. These types of offenses can be majorly detrimental to your credit score, however, according to the Consumer Financial Protection Bureau (CFPB), the credit bureaus has been removing some unverifiable tax liens and civil judgments as of late.
If you have public records on your credit report, know that you’re not alone. Work on rebuilding your credit in other ways such as making your payments on time and keeping your balances low.
How to Dispute Errors in Your Credit Report?
We’ve mentioned time and time again to dispute any errors on your credit report as it can be detrimental to your financial future. Not only can an error lead to a lower credit score, but it can mean that your identity is being compromised.
There are five major steps to disputing errors on your credit report:
- Identify errors: Look through every detail of your report to find errors since it’s common to find more than one mistake.
- Gather verifying evidence: Use backup information to show that the errors you found are untrue.
- Send a credit dispute letter: Mail a letter to the credit sporting agency that issued the report with the error(s) and verifying evidence.
- Allow time for investigation: The credit agency has 30-45 days to respond to your dispute.
- Follow up: Follow up with the credit agency if they haven’t responded after 30 days.
Follow our step-by-step on how to dispute a credit report to learn more . And know, if you’re unhappy with your score, we can challenge, dispute and monitor your credit score for you.
from a Credit Expert