How to Read and Understand Your Credit Report
It's important to review your credit periodically. But your credit report contains a lot of information, and it can be confusing to navigate. Here's how to decode and understand your report.
For a number of reasons, experts recommend checking your credit report once a year. Because your credit is a collection of your debt history, it can affect your loan interest rates and ability to open financial accounts. An annual review helps ensure your report is up-to-date and accurate. Also, if you're a victim of identity theft, your report might contain errors. Overall, reviewing your credit keeps you aware of your financial situation.
The Anatomy of Your Credit Report
You might see a handful of sections on your report, but most of the information is grouped into four main categories: personal information, public record information, creditor information and credit inquiries.
This is pretty self-explanatory, but this section generally includes:
- Your name and aliases Social security number Date of birth Employment data Current address Previous address
Public Record Information
If you have any open legal issues related to your financial situation, they'll be included in this section. These records might be:
- Bankruptcies Liens Judgments Wage garnishments
CreditCards.com adds that if you're looking at a TransUnion report, you'll also see an estimated date of removal for each item.
Here's the meat of your report. All of your existing lines of credit are included in this section. If you've had any credit turned over to a collection agency, that'll be included, too.
Among some basic information, each account section tells you:
- The status of the account: Current/open, closed, charged-off (sent to collections) The responsibility of the account: Joint or individual Your account balance Your most recent payment Past due information, if applicable Your credit limit
Generally, your adverse accounts and good accounts will be split:
Adverse accounts, potentially negative items
These are the accounts that hurt your credit. If you have an account in this section, you might have made late payments, the balance might be outstanding, or the account may have been sent to a collection agency. According to CreditCards.com :
"Even if you are current on your in your payments for a credit account, it may still be included in this section of your credit report—if you had ever missed or were late on a payment."
The site explains that all three credit bureaus (Experian, TransUnion and Equifax) allow you to dispute any of the accounts in this section. If the accounts are indeed adverse, they'll be removed from your report after seven years. Again, if you're looking at a TransUnion report, the date of removal is included.
Accounts in good standing, satisfactory accounts
These accounts have been paid in full and on time.
Terms to know
- Charge-off, Payment after charge-off. If the status of your account is "charged-off," this essentially means the creditor has given up on you, charging the amount off as a loss. Usually, they've sent your debt to collections. If you made a payment after a charge-off, it won't be removed from your account. As Bankrate explains:
"You did pay, and that's great! But that doesn't change what already happened. At one point, your debt was charged off, and your credit report is accurate in reflecting that. It'll show the charged-off debt for seven years from the date it first went into continuous delinquency."
- Revolving account. If your account type is revolving, it's likely a credit card. These are accounts that you don't have to pay in full every month. You have the option to revolve your credit and pay interest on the amount
you revolve. Installment account. Usually loans. These are accounts with fixed payments over a fixed time period. Open account. These are less common to see on your credit report. They're accounts that require you to pay the balance in full each month. A utilities company, for example. Collection account. If an account has been transferred to a third party collection agency, that credit shows up as a collection account, even if you've settled the amount.
This section includes individuals or businesses who have pulled and reviewed your credit report. It might include a bank at which you opened an account, for example. Or a mortgage lender, if you're applying for a home loan. According to College Answer. there are two types of inquiries.
- Hard Inquiries: Made by lenders when you've applied for a loan or line of credit. If too many are made within a certain time frame, this can count against your credit score. Soft Inquiries. Made when you check out your own credit report or when a marketing agency "pre-approves" you for a line of credit.
Learn The Codes
Banking site Bankitis offers a handy breakdown of the credit report codes. Here are some different status codes you might see, and what they mean:
- CURR ACCT. Account is current, in good standing CUR WAS 30-2. Account is current but was 30 days late twice PAID. Account balance paid off, inactive CHARGOFF. Unpaid balance charged off, credit grantor no longer seeking balance (likely has been sent to collections) COLLECT. Account is seriously past due and has been sent to collections FORECLOS. Property was foreclosed BKLIQREQ. Debt forgiven via Chapter 7, 11 or 13 DELINQ 60. Account 60 days past due
Learn How Your Fico Score is Calculated
MyFICO.com says your credit score is based on five cateogries. Here's a breakdown.
- Payment history (35%): Payment history reflects whether you've paid past accounts on time. So if you're good about making payments on time, your credit score will increase. According to the site: "A few late payments are not an automatic 'score-killer.' An overall good credit picture can outweigh one or two instances of late credit card payments." Amounts owed (30%): Lenders what to know how much you owe. If you're close to reaching your credit limit for an account, ("maxing out"), this may negatively affect your credit score, the site says. Length of credit history (15%): A longer credit history will increase your FICO score, according MyFico.com. FICO also takes into account how long you've been actively using those accounts. Types of credit (10%): Your score considers your mix of credit cards, installment loans, retail accounts, mortgage loans and finance company accounts. It also looks at the amount of accounts you have open. MyFico adds that closing an account doesn't make it go away; it will still show up on your report. New credit (10%): Inquiries into new lines of credit can lower your score.
Dispute Any Mistakes
If you think your report contains an error, you can file a dispute. All three of the major credit reporting agencies allow you to file disputes online. You can also mail in your dispute. The Federal Trade Commission offers sample dispute letters. According to Bankrate, TransUnion and Equifax offer a mail-in dispute form, and Experian offers this on the last page of the consumer's Experian credit report.
If it's your first time reading a report, or if your report includes a lot of activity—especially adverse activity—a credit report can be confusing. Don't let that deter you from keeping up with your credit. Once you learn how to read it, it's pretty simple.
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