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What Does it All Mean? Reading a Credit Report |
Mastering the science of reading a
credit report is not an easy task -- but it is a necessary one. If you take your credit
seriously and want to maintain it, you'll take the time to understand what personal
information is being reported. If any incorrect data is present, you'll want to catch it
and resolve it quickly.
Let's have a look at what it all means.
What's in a Credit Report?
The look and format of your credit report may be different depending on which credit
bureau you use, but the breakdown of the report will always include the following four
main categories.
1) Personal Information.
Name, past and present addresses, social security number, date of birth, employment
history. Creditors report this information to the credit bureaus every time you fill out a
credit application, so it's important that your credit applications are accurate and
complete.
2) Credit History.
Name of creditor, type of account, account number, date account was opened, current
balance or credit limit, original amount of loan. Your payment history is of particular
interest to creditors especially if your accounts have been given to a collection agency
or you're consistently late with payments (delinquency status).
3) Inquiries. Names of
creditors and retailers who have requested a copy of your credit report within the last
two years. This may include general inquiries for promotional offers or just creditors
checking up on their clients. In either case, creditors might decide your overextended if
they see too many requests.
4) Public Information. Bankruptcies, foreclosures, tax liens, court
judgements, lawsuits, criminal arrests or convictions. Federal law also requires child
support delinquencies to be included in this category if the payment amount exceeds $1000.
Review the Contents
Make sure you review your credit report carefully.
Look for these typical mistakes:
- Incorrect personal information.
Confusing your profile with someone who
has the same first and last name.
The wrong social security number.
Not including important changes you
submitted to help resolve a dispute at an earlier date.
*Check out a sample
profile from Equifax.
*A Trans Union credit report.
How is the information in my credit report used?
Typically, a lender uses this information, along with their own standards to determine
whether to grant you credit or not. It's called credit scoring, and lenders use it to help
evaluate your ability to repay loans -- to see if you're a good credit risk.
Credit scoring is based on statistics and real data. Points are added to your credit score
for every positive characteristic you display. They compare this with a set model and then
rate your ability as a borrower to make repayment. Credit scoring helps lenders look at
applicants objectively.
Checks and balances
Learning to read and understand your credit report is definitely time well spent. You
should know what third-parties are saying about your credit history, and should
corrections be necessary, you'll be given a chance to report the problem to the credit
bureaus. Removing inaccuracies from your file is crucial to maintaining your credit
worthiness.
Credit and Debt Calculators:
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• Should I pay
off debt or invest in savings?
• What will it take to pay off my balance?
• How important
is the interest rate?
• Should I
consolidate my credit cards? |
