It’s important to know how to read a credit report and understand what types of information it contains. This is because the items on your credit report directly contribute to your credit score.
And when you have good credit, it’s easy to qualify for financing when you need it, whether it’s a new car loan, a mortgage, or a credit card.
Understanding your credit report can help you identify the problem areas and improve them if you have bad credit. As the negative items on your credit report are replaced with positive ones, you’ll notice your credit score begin to increase.
The Three Major Credit Reporting Agencies
Equifax, Experian, and TransUnion are the largest and most trusted credit reporting agencies, aka credit bureaus, in the nation. Each credit bureaus issues separate credit reports.
The majority of lenders use at least one, if not all, of them to check your credit history. While each credit bureau has subtle differences in how they report, most of the information on their credit reports is similar.
Each credit bureau’s credit report structure has several key categories of information that are deemed either positive, negative, or neutral.
These categories include your account summary information, account history, credit inquiries, public records, and consumer statements. Let’s look at each one so you know how to read a credit report, and more importantly, how to use it to your benefit.
How can you access your credit report?
Before you learn how to read a credit report, you first have to get a copy of it. You are entitled to a free credit report every 12 months. The quickest and easiest way to get your free credit report is to visit AnnualCreditReport.com. It’s the only website that the three major credit bureaus run.
Once you’re on the site, start by entering some basic information about yourself. You’ll then have to go through a separate identity verification process for each credit bureau.
If you’d like, you can begin by requesting just one or two credit reports and saving the others for later. This could be helpful if you want to track how the information on your credit report is changing over time.
Applying for a Loan?
But if you’re about to apply for a large loan, you might want to check all three credit reports at once to ensure your information is accurate and up to date.
Another consideration when you’re about to apply for new credit is the length of dispute time. When you get your credit report for free, the credit bureaus can take up to 45 days for an investigation. So if you’re in a hurry, consider purchasing your credit reports because they only have 30 days to respond to disputes.
Confirming Your Identity
Once you decide which credit reports you want to request, you’ll be asked a series of personal questions only you should know the answer to.
This might include confirming previous legal names and addresses or answering financial questions, such as what credit cards you have or when a particular account was opened. From there, you can download your credit report and view it immediately.
If, for some reason, you don’t answer the questions correctly, you have the option to print out a form and request a copy of your credit report via regular mail. You can also use this option if you prefer paper copies over digital copies.
What information is on your credit report?
Now that you know how to get your credit reports from Equifax, Experian, and TransUnion, let’s take a look at the information you’ll find there. Some of it is basic and easy to understand, while other parts require a little more analysis. The good thing is, you only need to learn this information once.
After you figure it out, you’ll be able to quickly review your credit report and understand what is being reported with little effort going forward. This information can help you improve your credit score and contribute to making better informed financial decisions in the future. Reviewing your credit reports regularly will also allow you to recognize signs of potential identity theft.
This basic section of your credit report is easy to understand, but you’ll still want to check the details carefully for accuracy and consistency.
Here you’ll see information including your name, former legal names, current and past addresses, date of birth, social security number, current and previous employers, spouse information, and whether it’s a joint account report or not.
You may or may not have a lot of information in this section, depending on how often you’ve applied for credit.
For example, your employer doesn’t report any information about you, and this section isn’t meant to serve as a resume. Instead, a lender may report your employment information from a loan application you’ve submitted.
Personal information doesn’t affect your credit score. It is only used to verify your identity when needed. Check to ensure everything is accurate, but don’t stress, especially if you see something like a past job missing from your credit report.
Here you’ll find a summary of all of your debts and where you stand with each of them. For example, if you have a mortgage, you’ll see your balance, the original loan amount, and how many total balances you have.
You’ll see your total balance owed for all cards, how much credit you currently have available, your credit limits, debt to credit ratio, monthly payment amount, and the number of credit accounts with a balance.
One thing to note about your credit card balance is that depending on when the credit report is pulled, you could still have a balance even if you pay all of your cards in full each month.
That’s because credit reports are essentially a snapshot in time. So if your credit report (or your credit score) is pulled after a billing cycle is complete, but before you’ve made your payment, then that full balance is shown.
To avoid this from happening, consider paying your credit card bill bi-weekly or even weekly. That way, you never have more than one or two weeks worth of charges listed on your credit report. Alternatively, if you reserve your credit card usage for major purchases, pay it off as quickly as possible rather than waiting until your next statement’s due date.
If you’re in the middle of a loan application and need to boost your credit score by a few points or lower your debt to income ratio to qualify, ask your lender to perform a rapid rescore once you’ve settled your account balances.
This service quickly updates your credit report with the most recent information and just takes a few business days to complete, rather than the typical month or two.
Depending on the length of your credit history, this section can be pretty long, but it’s also extremely important. So don’t let the length deter you from reviewing these entries with a fine-tooth comb.
Why? Your account history shows years of individual payments you’ve made month-by-month on each of your credit accounts, from loans to credit cards.
And your payment history accounts for 35% of your credit score, which is the largest contributing factor. So you must perform your due diligence and ensure everything is accurate in this section.
Here’s exactly what you’ll find under your account history section. Again, the details may vary among the three major credit bureaus, but the general idea is the same for each one.
First, you’ll see an entry for each of your current open accounts. Perhaps the most important piece of information here is the current payment status. Ideally, you’ll want the payment status to be “Pays As Agreed” because it means that you’re up to date on all of your payments.
However, depending on your payment history, you might see codes indicating any of the following:
- the account is now current but was 30, 60, 90, or 120 days past-due at some point
- the account is now current but was previously in collections
- it’s currently in collections
- it had a paid collection
- or it is a charged off account
There are many other possibilities, so look for a chart with explanations of the code given if you’re unsure what your specific payment status indicates.
Type of Account & Payment History
Under each account, you’ll also see an overview with information such as the type of account, the highest credit limit you’ve had, term duration, date opened, current balance, scheduled payment amount, and your actual payment amount.
From there, you’ll see a month-by-month listing of your payment history on the loan or credit card. The credit bureaus categorize each account as Open, Negative, or Closed.
Most negative accounts generally fall off of your credit reports after seven to ten years. However, closed accounts in good standing can remain on your credit reports indefinitely.
A credit inquiry refers to an entry on your credit report indicating you have applied for new credit, insurance, or financing. Each of these actions triggers a company to pull your credit, and your credit score then dips a few points every time.
If you have just one or two hard inquiries listed, it will not have a major effect on your credit score. However, if you have several inquiries listed, the damage could really start to add up.
Plus, you might scare off potential lenders by making it look like you’re scrambling for credit. So it’s wise to be careful with the amount of credit card and loan applications you submit.
However, when you’re rate shopping, you can get a bit of leeway on inquiries, specifically for installment loans. For example, say you’re comparing auto loan offers. As long as you apply with multiple lenders within a few weeks, all of those hard inquiries on your credit report will only affect your credit score as a single credit check.
Hard inquiries only stay on your credit report for two years, and luckily, they only impact your credit score for one year. Still, check for accuracy in this section. In the instance you find an inquiry for a loan product you don’t remember applying for, you can lobby to have the item removed from your credit report.
You will also see soft credit inquiries listed in your credit report. Soft inquiries don’t affect your credit scores at all.
You should recognize any information contained in the consumer statement section because it comes directly from you. Whenever you file a dispute with one of the credit bureaus, and the subsequent investigation doesn’t resolve anything, you may submit a statement explaining your side of the situation.
Typically, you’re allowed 100 words. This gives you the chance to provide lenders with more information. However, do not overdo it with consumer statements. Too many can raise a red flag even if you feel like the case (or cases) didn’t end fairly.
The public records section deals with any judgments, tax liens, bankruptcies, or other public records available about you at the county, state, and federal levels. You’re likely to be very familiar with these particulars because they often involve court appearances, lawyers, paperwork, bureaucracy, and other headaches.
Any of these items will have an enormous impact on your credit score and stay on your credit report for seven years or more. So make sure that all the information here is correct. Otherwise, you’ll have unnecessary damage done to your credit history.
What information ISN’T on your credit report?
One of the most important things to realize about your credit report is that it does NOT contain your credit score.
It is your right and responsibility to review and potentially dispute any incorrect information on your credit report. However, credit scores typically need to be purchased separately, although you can sometimes view yours for free through a promotion from one of your credit cards or bank accounts.
Your FICO Score
The FICO score is the most common credit scoring model used by lenders. But, Experian, TransUnion, and Equifax have created an increasingly popular credit scoring model called the VantageScore to compete with FICO.
The most recent version of this is VantageScore 3.0. Many websites offer free educational credit scores, but the algorithms aren’t the same as the mainstream models. For this reason, the credit scores can vary greatly from the one your lender actually uses.
Remember that your credit report directly affects your credit score, but the two are separate items. So start by reviewing your credit report and making sure all the information there is accurate.
Then, when you’re ready, consider purchasing your credit score to see where you stand. By then, you should have a good idea of what factors are hurting or helping your credit score the most and which ones you need to continue working on to improve.