How to Read a Credit Report

One of the most important things you can do to protect your personal finances is to periodically obtain and review a copy of your credit report

English Skills - Writing | British Council Most people know that they should review their credit reports at least twice a year to ensure that all information contained in the report is accurate. Still, many consumers are unsure how to read a credit report – without this knowledge, obtaining the report is of little use.

Before you begin analyzing your credit report, it is important to understand that credit information is typically reported to three main reporting agencies – Experian, Equifax, and TransUnion. Each agency compiles a separate report for each consumer. Some lenders and creditors report information to only one agency, while others report to all three. For this reason, the information contained in each report may be different.

It is a good idea to obtain all three reports. This will help ensure that you do not miss any erroneous information that could prevent you from obtaining credit in the future.

A credit report is typically divided into four sections. The first section contains your personal information, such as your name, address, date of birth, and driver license number. It may also include past addresses, your spouse’s name, and the names of present and past employers.

The second section contains your credit history. Here, you will find the names and addresses of your creditors, as well as account numbers for loans, credit cards, and lines of credit. (Don’t worry though, the account numbers are typically scrambled or obscured to protect your personal security).

For each account, the report will list the type of account (installment, revolving credit, auto loan, etc.), and show whether it is a single or joint account. It will also show whether each account is open, closed, paid off, or charged off. This section tells potential lenders about your payment history on each account – if you have miss payments or paid late within the past 24 months, it will appear here.

The third section of your credit report shows items of public record. This can include bankruptcies, judgments, tax liens, and even criminal acts. It is especially important to make sure there is no incorrect information in this section, because entries here can do a significant amount of damage to your credit score. Potential lenders may be willing to overlook a few late payments, but they will almost never overlook a public record item.

Finally, the fourth section lists inquiries – people and companies that have asked to see your credit report. Many people worry more about this section than necessary – although too many inquiries can negatively impact your credit score, most types of inquiries are not counted.

For example, “soft” inquiries, which companies use to send out pre-qualified credit offers, do not factor into your score. “Hard” inquiries (those made by potential lenders when you apply for credit) may affect your credit score, but many of these are ignored as well.

Understanding how to read a credit report lets you take charge of your financial future. You’ll be better able to make solid financial decisions and build a positive credit history. When you can read and understand your credit report, you will be better equipped to improve your score.

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