Decoding Your Credit Report
How to read your reports and correct errors.
Your credit report is one of the most important documents in your financial profile. A clean credit report helps ensure you have a strong credit rating so you can purchase property and other assets, as well as qualify for new lines of credit at low interest rates.
In short, a clean credit report helps you realize your financial goals. By contrast, a bad credit report can prevent you from doing all of that, as well as prevent you from renting property or car, and even getting that job you wanted. This makes it essential to understand how credit reports work and how to use them to your advantage.
Fact: By law, everyone is entitled to receive one free credit report from all 3 credit bureaus every 12 months.
What is a credit report and what does it mean?
At a basic level, a credit report is a document that snapshots your history as a credit user. This includes your credit history, an overview of accounts, and any public records history that might relate to your financial makeup, such as finance-related court judgments like alimony or child support.
This report is used to calculate your credit scores so lenders and creditors can have an easy way to assess your risk as a borrower. This makes credit reports key is maintaining a healthy financial outlook.
3 reports for you to review
Although you always hear the saying to check your credit report regularly, in truth you don’t just have one report.
Each of the three main credit bureaus (Experian, Equifax and TransUnion) each maintains their own version of your credit history. Creditors and lenders pull all three reports when they run a credit check. So you have to know what’s in all three reports.
When you log on to annualcreditreport.com to redeem your one free report every twelve month, you are actually requesting one report from each company. In order to make sure your credit file is correct, you have to review all three reports and send any corrections to each bureau.
How many points can a mistake on your report cost on your credit score?
a) 10 points
b) 25 points
c) 50 points
d) 100 points
A really bad mistake (like a duplicate mortgage) can actually cost 100 points or more off your credit score.
d) 100 points
How to read a credit report
Although each bureau’s report differs slightly from the others, they all contain the same basic information. Thankfully, all of the reports also generally present the same information in way to make reading and understanding your credit reports a little easier.
Here’s what each report will contain:
- Personal Information. This section gives your personal details: name, current address, previous addresses, social security number, date of birth, and employer. It may also list any aliases assigned to you; for example, if your name is John Smith, your report may list aliases for John C. Smith if you used your middle initial to open an account.
- Account Summary. Although each report differs slightly in how the information is presented, all credit reports contain a summary of your credit accounts and loans. This information includes the type of account, current balance, open/close dates, and account status.
- Public Records. All credit reports include public records information that may be relevant to your credit profile. Court judgments such as bankruptcy and foreclosure are included here. It may also include information from the IRS on unpaid tax liens, as well as collections accounts.
- Credit Inquiries. Credit reports have a section for credit inquiries to show when a hard credit inquiry was made on your report. A hard inquiry is where a creditor requests your report when you apply for a new line of credit. This a factor in determining your credit score.
- Consumer Statements. Your credit report will also always contain a section for consumer statements. You can add a consumer statement if you have recently been the victim of identity theft and wish to prevent anyone from opening lines of credit in your name without your express consent. It also includes any statements you make regarding rejected reports of discrepancies.
What to do with your credit report
Checking your credit reports regularly is essential to maintaining a good credit rating. You may think you can trust the credit bureaus to maintain a correct report for you, but the reality is mistakes are more common than you think.
Fact: Multiple studies show roughly 3 in 4 credit reports contain errors of some kind.
Experts recommend you should check your credit report at least once each year. They also recommend you should check it before you apply for a new line of credit or attempt to purchase a major asset, such as a car or home. You should take steps to get your credit report corrected if you find errors.