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How To Read Your Credit Reports

You do know you have a credit report, right? Right? Well, technically that isn’t right. It’s because you actually have three credit reports, one from each of the three credit bureaus–Experian, Equifax and TransUnion. You can download your report from each of these bureaus or get them altogether at www.annualcreditreport.com. They’re free once a year as this is what the federal government has mandated. If you need your reports more frequently than this, you will then need to pay for them.

Why it’s important to review all your credit reports

You really do need to review all three of the credit reports. There are two reasons for this. First, all three display your information in different formats. And secondly, they can contain radically different information. You could get one of your credit reports, review it and think that they would all be the same. But that’s not the case.

Here’s a sample of what a TransUnion credit report looks like.

Sample TransUnion Credit Report

In comparison, here’s a sample Equifax credit report.

Sample Equifax redit report

Here’s a sample credit report with a key that could help you better understand your credit reports.

Sample credit report and key

Why they are different

The information in your credit reports is different because the system is voluntary. Creditors supply credit information to whichever agency they choose – if at all. So your report from TransUnion could contain negative information you would not find on your report from Equifax. Or vice versa.

The setup

As you have seen from the samples shown above credit reports can look very different but are generally divided into four components: identifying information, credit history, public records and inquiries. Your identifying information is just that – information that identifies who you are. When you review a report the first thing you need to do is examine it carefully to make sure that it’s accurate. It is not uncommon to find your name spelled several different ways or multiple Social Security numbers. Why is this? It’s because someone provided the information that way. Don’t be concerned if you find several variations. It will stay in your report even if it’s wrong because changing it might mess up a link.

You might also find under Identifying Information your current and former addresses, your birth date, driver’s license numbers, telephone numbers, your spouse’s name and the name of your employer.

Credit history

Each of your accounts will include your creditor’s name and an account number. Also, you might find several accounts from the same creditor. This is due to the fact that most creditors have more than one type of account. Or they may transfer your account to a new location if you move and give it a new number. Your credit history will also have the following

  • The type of credit – such as a car loan, installment loan or mortgage
  • If that specific account is just in your name or includes someone else’s
  • The loan’s total amount, its high credit limit or if it’s a credit card, its highest balance
  • The amount still owed
  • Whether it’s a minimum monthly payment or a fixed monthly payment
  • The account’s status expressed as open, closed, inactive, paid off, etc.
  • How satisfactorily you’ve paid on the account

Your credit history

This section will display your recent payment history and whether or not you’ve paid each month as you had agreed. Credit reports from TransUnion and Experian also have the amount of each payment. There may be other comments under an each account such as whether it was closed by a consumer, was charged off or listed as a default. The term “charged off” means that your creditor has given up. In other words, it made an effort to collect the debt and couldn’t so charged it off. “Charge-off” is basically an accounting term. What will actually happen is that your creditor will probably bundle up your debt along with dozens of others and sell the whole bunch to a collection agency.

Public records

If you have information in this section, it’s not a good thing. If there is a public record in this section it’s because you had something negative. However, this will list only data related to your finances such as judgments, tax liens and bankruptcies, all of which can ruin your credit. The only good news is that lawsuits, arrests and other such information won’t be included.

Inquiries

This is simply a list of every creditor that has requested your credit report. Whenever someone gets your report, it posts an inquiry. For example, if you were to call a credit bureau and ask for a copy of your report it will be there as an inquiry. There are actually two types of inquiries – hard and soft. Those that were initiated by you when you filled out a credit application are called hard inquiries. In comparison, when they from companies that want to prescreen you for a credit offer or from potential employers or creditors who are monitoring your account they are called soft inquiries. These inquiries appear only on reports that are given to the consumer.

You might find errors

It’s quite possible you will find one or more mistakes on your credit reports. A 2013 government study found that 20% of consumers had errors on their credit reports. And 5% had errors so serious that it was costing them more money on their loans and insurance. What can you do if you find a mistake such as an erroneous amount or an account that isn’t really yours? You will need to dispute it with the credit bureau. Your credit report will include a web address for that credit bureau’s online dispute form. However, most experts counsel you to dispute the mistake in writing. If you want to have the error deleted from your report, you will need to provide supporting documentation. It should be attached to your dispute letter and then sent to the appropriate credit bureau as registered and return receipt requested so that you can prove you sent the letter and that the bureau received it.

What happens when you dispute an item

If you do find a mistake and dispute it, the credit bureau will contact the institution that supplied the information, which then has 30 to 45 days to respond. The item you disputed will continue to stay on your credit report until the issue is resolved. If you don’t feel that your dispute was well handled, you can file a complaint online with the Consumer Financial Protection Bureau.

How this translates into your credit score

A third reason why it’s important to review your credit reports is because they are the basis of your credit score. In other words, negative items on your credit reports translate into a bad credit score. How your credit reports turn into a three-digit number is a process that was invented by the company FICO. No one but FICO knows the algorithm that produces your score but it is known that it’s made up of five sections as follows:

  • Your payment history – 35% of your score
  • The total amount you owe – 30%
  • Your credit history or how long you’ve had credit – 15%
  • Inquiries and new accounts – 10%
  • The types of credit you’ve used – 10%

Four of these sections are pretty self-explanatory. The one that’s a bit misleading is the section The Total Amount You Owe as it’s not really your total debt. It’s your debt-to-credit ratio. For example, let’s suppose you have total credit available of $12,000 (the total of all your credit limits) but have used up $6,000 of it. This would yield a debt-to-credit ratio of 50%, which most experts say is too high. This is one area where you could quickly increase your credit score simply by paying down the amount you owe until your debt-to-credit ratio gets to 30% or lower. Alternately, you might be able to talk some of your lenders into increasing your credit limits. This would have the same affect on your debt-to-credit ratio as if you had paid down some of your debts. However, if you’re having a problem with debt or a low credit score, you may find that your creditors very reluctant to increase your credit limits.

How to get your credit score

If you haven’t seen your credit score recently – or ever – you can get your true FICO score on the website www.myfico.com. You could also get your credit score from the three credit reporting agencies though this won’t be your true FICO score. However, it should be close enough for you to have a pretty good idea as to how you would look to potential lenders.

By Paul Ritz
I am an associate at National Debt Relief, which is a Debt Consolidation Company that has helped thousands of Americans facing credit card debt problems. We help with debt settlement, debt management, and other debt related financial crisis' facing consum

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