How to read a credit report

How to read a credit report
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Point Editorial

People are increasingly concerned about maintaining a good credit score. Good credit increases your chances of receiving a credit card or personal loan, or of qualifying for a mortgage. Bad credit usually means higher interest rates or difficulty accessing certain financial instruments, like loans or lines of credit.

There are ways to ensure your credit score stays strong or to improve it after it’s decreased. The best way to maintain a good credit score is to keep a clean credit report. You should make a point of checking up on your credit report once a year and signaling any errors you find to your bank or the credit bureau. Requesting your credit report is easy, and you get one free annual report a year.

Once you receive your report, there are several things to watch out for. It might seem overwhelming at first, but with a bit of patience, you’ll be able to get a clear picture of your finances to help plan for the future. 

Understanding credit reports

You can think of your credit report as a snapshot of your financial life. It’s a detailed record of your credit history used by lenders, employers, insurers, and landlords to determine how likely you are to pay your monthly payments on time, or your credit risk level. 

Your credit report is created when you borrow money or apply for credit for the first time. Banks, credit reporting agencies, and other credit lenders frequently send information about your accounts and activity to the different credit bureaus, who compile the reports and make them available to third parties inquiring about your credit history.

Financial institutions make decisions based on the information contained in your credit report to determine the interest rates they’ll offer you, the amount of your credit limit, the cost of your insurance, whether or not you’re eligible for a mortgage, and more. That’s why it’s essential to ensure that your credit report’s information is accurate and that no one is fraudulently opening accounts in your name.

How do you access your credit report?

Three major credit bureaus compile credit reports: Equifax, Experian, and TransUnion. The law requires each of the major credit bureaus to give you a free copy of your credit report once a year, but only if you ask for it. Subsequent requests are available for a fee.

The credit reports filed by each bureau may differ because the bureaus don’t all do business with the same financial institutions, so you should check your reports from all three bureaus to identify any inconsistencies between them.

You can request your free copy online with each bureau or get all three reports at once by ordering them at AnnualCreditReport.com. Some people order their reports separately so they can stagger them throughout the year to get a regular update on their credit score. In response to the coronavirus pandemic, AnnualCreditReport.com is offering free weekly updates through April 2022. 

You can also get an extra free copy of your credit report whenever you’re declined for a credit application.

How to read your credit report?

Each credit bureau compiles its reports differently, but all of your reports should contain roughly the same information.

Here are the main categories you can expect to find:

  • Personal information (including employment history)
  • Accounts and credit history
  • Credit inquiries
  • Public records 

Personal information

The first thing you’ll see on any credit report is a basic collection of biographical information, including your name, date of birth, current and past addresses, phone number, name of current and past employers, and your social security number (SSN).

When reading your report, make sure that all this information is correct. Any errors might mean that you’ve been mistaken for someone else, so it’s important to note even the slightest inconsistency.

Note that while the report contains a list of your employers, that information is for identification purposes only. Your employment duration, salary, and current employment status don’t appear on your credit report and don’t impact your credit score.

Accounts and credit history

You want to pay very close attention to this section of your credit report because it contains account information for every account you’ve opened with a credit card company, bank, or other creditor within the last seven to ten years.

Most importantly, you want to make sure that every account number on the list belongs to you. Some mistakes can occur due to out-of-date information, but it can also be a red flag for identity theft if you see an account you don't recognize.

The credit history section should include the following elements:

  • Current and closed accounts
  • Payment history
  • Current balances
  • Names of creditors and lenders
  • Credit limits and utilization or loan amounts
  • Account opening and closing dates
  • Account status (open, closed, paid, refinanced, transferred, foreclosed, charged off) 

You may also see a section called “adverse accounts,” which is where you’ll find late payments, past-due accounts, or debts that were considered delinquent and sent to a collection agency. This hurts your credit score, so it’s essential to make any necessary corrections.

It’s also important to check that your credit limits and current balances are correct. Mistakes here can affect your credit utilization, which can impact your credit score.

You should report any mistakes or inconsistencies as soon as possible to either the relevant financial institution or the credit bureau. If you see any activity that looks fraudulent, you’ll want to ask to put a fraud alert on your account to prevent potential future scammers from opening credit accounts or taking on credit in your name.

Credit inquiries

This section shows the list of times when someone checked your credit, whether that’s opening a new account, line of credit, or something like a utility bill.

There are two types of inquiry:

  • Hard inquiries happen when you explicitly authorize a lender to check your file as part of a credit application. These can cause a temporary dip in your credit score, so you want to avoid making too many requests in a short period. You should ensure that you’ve authorized all inquiries in this section and that they don’t stay on your report for more than two years.
  • Soft inquiries are when you check your own credit or when financial institutions consider sending you a promotional offer. These don’t affect your credit score, but you should still make sure they’re accurate.

Public records

This section contains any government records that might affect your credit, like bankruptcies, foreclosures, civil judgments, and repossessions. Public records hurt your credit score because they can signal a pattern of serious delinquency. 

Although it’s rare to come across mistakes in this section, you should double-check the information’s accuracy. Most public records should only stay on your report for seven years, so you want to make sure they’re removed after that time.

(Chapter 7 bankruptcy is an exception and stays on your report for ten years.)

If you’ve had the misfortune of having a negative public record appear on your credit report, you’re allowed to submit a personal statement to explain the circumstances surrounding it. It won’t improve your credit score, but it can make a difference when a potential creditor is considering whether or not to extend a loan.

Final thoughts

Taking the time to review your various credit reports is vital for getting your personal finances in order. When you have a clear picture of your credit history, you can take the necessary action to get a higher credit score and improve your chances of getting a loan. It’s always worth checking for signs of fraudulent activity.

If you’re looking for a way to take control of your finances without relying on credit, PointCard is the perfect tool for you. Point gives you many of the advantages of a credit card, but without the hassle of a credit inquiry and with no interest rates.

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