How To Read Your Credit Report
What is a credit report?
Your credit report is a summary of your credit history, including: recent accounts you’ve had, debts, and payments on those debts.
It is a more detailed financial record than your credit score, and lists every item in your credit history.
Who uses my credit report?
Primarily lenders. If you want to take out a car loan, open a credit card, take out student loans, or get a mortgage for a house, the lender in charge of giving you the loan will check your credit report.
However, there may be other people that check your credit report as well, such as landlords, utility companies, insurance providers, and even employers. They use the information in your credit report as a measure of your trustworthiness and reliability.
Why is my credit report important?
First, your credit report is the foundation for your credit score. Your credit score is a number between 300-850 and is generally used to show how reliable you are with money. But your credit report includes more detailed information on the age, history and make-up of your credit accounts.
Second, as I mentioned above, your credit report is used as a measure of your trustworthiness and reliability with money. A lender wants to know “Will this person pay me back?” and if you have a history of on-time payments the answer is probably “Yes”. If you have multiple missed credit card payments, and items in collections, possibly even a bankruptcy, lenders will consider you a riskier investment and either give you a higher interest rate to compensate for the risk, or deny you outright.
Unfortunately for us, in today’s world, debt is often a necessity (to be clear I am NOT talking about credit card debt). Very few people can afford to buy a home, or even a car, in cash so they need to take out a loan. Without a good credit report, these tasks become nearly impossible.
What information is in my credit report?
The first thing you’ll see on your credit report is personal information like your name, recent addresses, employer, and social security number. Give the information a quick browse and check it for accuracy.
Next, you’ll see your credit score. Remember, your credit score is the number given to your credit between 300-850. For more information about your credit score, check out my blog: How to Build (or Rebuild) Your Credit from Zero.
Then, you’ll see a list of all of your credit cards as well as the current balances (although, I’ve found they are not usually the most up-to-date). You’ll also see any cards in which you’re an authorized user, as well as any credit cards that have been closed. Look carefully through the cards and make sure they all belong to you.
It’s important to check the information on your credit report for accuracy, and report and incorrect information directly to the agency.
In this section, you’ll also see your individual credit card limits, as well as your total credit limit across all cards. You may also see your utilization score, which is the percentage of your total credit limit that you use on credit cards. A number below 30% is good, and below 10% is great.
For more information about your utilization score and suggestions on how to build your credit, check out my blog: How to Build (Or Rebuild) Credit From Zero.
Next, you’ll see any loans, like auto loans, student loans, and mortgage loans. In this section, you should see the original balance of the loan, current balance of the loan, loan term, and payment history, including any missed payments.
Following loans, you’ll see a collections section. Collections is when your debt is sent to a company to collect. For example, if you leave a medical bill unpaid, the doctor’s office may send your bill to a collections agency. It then becomes the collections agency’s job to get that money from you. Any bills such as these will be listed in this section and remain on your credit report for 7 years, even once the bill is paid.
After this, you’ll find any hard inquiries to your account. A hard inquiry is when a lender checks your credit report before giving you a loan. It’s a deep dive into your credit history, and their investigation will later be listed on your credit report. These stick around for 2 years.
Finally, you’ll see public records, including bankruptcy. If you filed for bankruptcy, it will stay on your credit report for 7-10 years, depending on the type of bankruptcy you file for.
Items like hard inquiries stick around on your credit report for two years, whereas collections items and bankruptcies last for 7-10 years.
Why should I check my credit report?
Most importantly, you want to check your credit report for accuracy, especially the credit cards. I’ve heard way too many stories of people having credit cards opened in their name, only to be misused and their credit ruined (it’s far too common for parents to do this to their children).
I also once knew someone that had a credit card opened in their name, and they didn’t realize it for almost a year and a half because they never checked their credit report. It was very hard to prove that the card didn’t belong to them after such a long time.
Another reason to check your credit report is if you’re planning on making a big purchase in the near future, like a car or a house. You’ll want to have a good idea of what your credit report looks like before it’s pulled by lenders.
Who monitors my credit?
There are three credit reporting agencies that monitor your credit reports: Experian, Equifax and TransUnion. When you pay (or don’t pay) your credit card, car payment, student loans or mortgage payment those companies report that information to one, or all, of the three agencies.
Because companies don’t always report to all three agencies, there can be slight differences in your credit reports depending on whether you check Experian, Equifax or TransUnion. This is why it’s important to check all three at least once per year. Also, there are a handful of slightly different credit scoring models, in which different categories of your credit report are weighted differently, which could cause some variation in your credit score between the different agencies.
That being said, you’ll never see your TransUnion credit score at 790 and your Experian credit score at 615, and if you do, something is wrong and you should check your credit report carefully to report any inaccuracies.
What should I do if some of the information is incorrect?
There’s usually a button, link or address somewhere in the credit report that will take you to a dispute center. If you can’t find it just do a search for “How to file a dispute with Experian/Equifax/TransUnion”. You’ll likely need to send in a letter stating why the information is incorrect, along with evidence proving that it is incorrect. Fair warning, this can be an arduous process and you’ll likely need to push to get that information removed. This is also why it’s important to keep an eye on your credit reports and check them regularly.
Do I need to pay to check my credit report?
No. You are entitled by law to at least one free credit report from each of the agencies every year.
But, they all try to push paid products. In order to get your credit report, you’ll need to put in a lot of personal information like your name, address, phone number and social security number, but you don’t need a credit card.
Action items:
Go to annualcreditreport.com to get a free copy of your credit report from all three credit reporting agencies: Experian, Equifax and TransUnion.
Look carefully through the information. Is it all accurate?
Report any inaccuracies directly to the credit reporting agency.
Your life may not be perfect, but it is imperfectly yours. The only way to live it is your way.
