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How To Understand Your Credit Reports

Credit report with score on a desk

Understanding the information contained in each of your 3 credit reports is crucial. Although it is the responsibility of the credit bureaus to ensure that the information they have about you is true and up-to-date – after all those inaccuracies could cost you thousands, that’s not going to happen.

Credit bureaus process hundreds of millions of transactions every day; verifying every piece of information they receive about consumers would be practically impossible. The onus is therefore on you to keep a close eye on what is contained in your credit report, and to ensure that it is always 100% accurate and up to date.

Credit reports are much easier to read and interpret now than in the past. This is due to years of pressure from consumer advocates and regulators that has led to significant changes in the industry.

The rise of identity theft was a key consideration for lawmakers when Congress wrote the Fair and Accurate Credit Transactions Act of 2003, which amends the Fair Credit Reporting Act.

During this process, consumer advocates highlighted the importance of consumers understanding how the credit system works. These days, a bad mark on your credit report can play a key determining role in whether you land the job you’re applying for, how much you pay for auto and homeowners insurance, and your credit card interest rate, plus whether you have to pay your utility or mobile phone company a deposit.

Credit report errors are a lot more common than you think, and if you’ve never reviewed your report before, this erroneous information could be costing you a lot more than you realize. In fact, it is estimated that 75% of credit reports contain at least one error.

Most common errors include missing and late payments which could lower your credit score. If you find erroneous or inaccurate information, file a dispute immediately in order to have it expunged from your record.

If possible, provide supporting documents like receipts and bank statements to prove your case. Always make copies, and never send originals. Send your information by certified mail, and ask for return receipts to ensure your package arrived safely.

One thing you’ll find as you go through these reports is that their formatting is not standardized. Each of the three main credit bureaus uses a different format, plus each bureau’s format varies depending on whether you request the report online or order it by phone or mail.

They come in a variety of formats and at first glance can be a little intimidating. You have to know what you should be looking for if you are to actually get to dispute anything derogatory.

You can get a complete view of your credit history by ordering all 3 credit reports. Out of the three, the Experian report appears to be the easiest report to comprehend.

Interpreting the Information on Your Credit Report

Interpreting the information on your credit report can be tricky particularly if you don’t know what you’re looking at, or are not familiar with the terminology or presentation of financial documents. There has been a lot of pressure on the credit bureaus to make these reports a lot easier for consumers to read and interpret.

However, despite tougher laws, including free reports for consumers, centralized fraud reporting and more pressure on creditors to respond to consumers’ complaints, the credit-reporting industry is still, to a large degree, a black box, and consumers are still finding some of the information in their credit reports confusing and difficult to understand.

If you are having trouble interpreting your account information, be sure to check the envelope you received your credit report for a “How to read” sheet that the bureaus now include with each report. Also, each credit bureau offers information on its web site on how to read credit reports and how to submit a dispute.

When communicating with the credit bureaus, be sure to include the credit report number at the top of your report. Experian calls it the “report number,” TransUnion says “file number,” and Equifax refers to it as a “confirmation number.”

Here are some of the crucial sections to look at when reviewing your credit report:

Personal Information

The information in this section will be familiar to you. Here, you will find all of your personal details such as:

  • Name and aliases
  • Previous and current address
  • Date of birth
  • Telephone numbers
  • Driver’s license number
  • Social security number
  • Employment data.

It is important to ensure that your name is spelled correctly, and that all of the information is accurate. You are free dispute any piece of personal information that is incorrect or erroneous or that you don’t want disclosed. For example, under the Fair and Accurate Credit Transactions Act of 2003 (FACTA), you can request that your credit report only display a portion of your Social Security number, thereby lowering the possibility that you could become a victim of identity theft.

Public Record Information

This section includes any open legal issues related to your financial information. This typically includes:

  • Bankruptcies
  • Liens
  • Judgements
  • Wage garnishments

The information contained in this section can affect your credit viability like nothing else can. A public record can plummet your score by 75 points or more. Repossession, foreclosure, and bankruptcy can cost you 100-200 points.

Credit Inquiries

This section lists of all the organizations that have taken your details for promotional purposes or asked to see your credit report. If anyone has requested a copy of your credit report in the last two years, it will appear at the end of your credit report as an inquiry. It is important that you always review all inquiries in detail: they let you know who has been looking into your credit history and, more importantly, if any unauthorized persons have obtained your credit report. Essentially, you’ll find both voluntary inquiries – your own requests for your credit report, and involuntary inquiries – when lenders order your report to make you a pre-approved credit offer.

Inquiries have two primary types.

  1. The ‘hard’ inquiries which are made once you fill a credit application
  2. The ‘soft’ inquiries which are made for promotional offers, by different organizations.

It is important that you always review all inquiries in detail. If you suspect you may have become the victim of identity theft, this is the first place you should be checking.

Creditor Information

This section displays details of your credit and includes the following information:

  • Account status: Current/open, closed, charged-off
  • The responsibility of the account: Joint or individual
  • Account balance
  • Most recent payment
  • Past due information, if applicable
  • Credit limit

Accounts in good standing, satisfactory accounts

As the title suggests, this is where you’ll find positive information about your account.

Adverse accounts, potentially negative items

These are the accounts that will be wreaking havoc on your credit score. If you’ve ever missed or made a late payment, it will be reported in this section. Negative entries on your credit report such as a collection account, can decrease your credit score by 50 points or more.

All three credit bureaus allow you to dispute any of the accounts in this section. If the accounts are indeed adverse, they’ll be removed from your report only after seven years has passed. You’ll also want to look out for the “closed account” status. It doesn’t matter if you or your creditor closed the account; the reporting will be the same. It does however make a huge difference if you were the one to close the account. You will want them to show that the account was closed by the consumer because this will make a difference in the way that your credit score is reported.

In some cases you will see “Charge-Off” written on your report.

Terms to Understand

  • Charge-off, Payment after charge-off: If your account status is “charged-off,” this essentially means the creditor has given up on you, charging the amount off as a loss. A charge-off is an account that was written off for tax purposes by the creditor. Although the amount may be small it can still make a huge impact on your credit score. Usually, it indicates that they’ve sent your debt to collections. Even if you pay your charge-off the creditor will report that you have a “paid charge-off” which is just as bad as a charge-off. Note that even if you have made a payment after a charge-off, it won’t be removed from your account. It will not be deleted until seven years has passed from the date it first went into collections. If you’re looking at a TransUnion report, the date of removal is included.
  • 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: These are typically loans with fixed payments over a fixed time period.
  • Open account: These are accounts that require you to pay the balance in full each month. Examples include your cable, mobile or utility bills.
  • 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.

If you spot any anomalies in your credit report, you should start by filling out a form that is attached to the report. However, note that this can take time because once you file the application the creditor is given a time of 30 days to respond to the charge of discrepancy.

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

Correcting Erroneous Information

If your report contains an error, you will need to file a dispute immediately in order to have it expunged from your record. All three of the major credit reporting agencies allow you to file disputes right within your credit report. You also have the option of mailing in your dispute. You can find sample dispute letters from the Federal Trade Commission here. TransUnion and Equifax offer a mail-in dispute form, and Experian offers this on the last page of the consumer’s Experian credit report.