Nobody really likes to think about his or her credit report. Even if you’re 99% certain that your credit is in good standing, requesting your annual credit report can be an exercise in anxiety. Imagine if you’re wrong. Maybe, all along, you didn’t really understand your report in the first place.
If you’ve never requested your credit report before, the anxiety can be even worse. Many people don’t know where to get their credit reports, don’t know whether it’s free, and don’t know if they’re damaging their credit score by requesting it.
If that sounds like you, relax. Accessing your report is no big deal, and understanding it isn’t too hard either. Take a few minutes to read this article and you’ll be ready to analyze your credit report.
Before you get into the details of how to analyze your report, however, you should be certain that you understand what a credit report is.
Common myths about credit reports
Credit is complex, and with any complex issue, there are bound to be misconceptions. We’re here to set the record straight.
1. Requesting your credit report will hurt your credit score
Requesting your own credit report will not damage your credit score. It’s understandable why you might think it would, however, as some credit inquiries can bring your score down.
When you request access to your own credit report, it’s technically referred to as a “soft” credit inquiry. This inquiry shows up under a section on your report called “requests viewed only by you,” and is only accessible by you. That section is not included in the data sent to creditors.
If a lender or creditor pulls your report, however, that’s a “hard” inquiry. This can do a bit of short-term damage to your credit score, especially if you’ve applied for credit multiple times in a short period.
2. Your credit report is akin to your credit score
Most people, even if they’ve never ordered a credit report, are familiar with the concept of a credit score. Some people even equate the two, figuring that if you order your credit report, the only valuable information you’ll get is your credit score.
While your credit score is a major part of your report, it isn’t the only thing on there. Credit reports list detailed information about everything from credit history to past inquiries by lenders about your credit. There’s a lot to learn.
3. There’s only one credit report
You don’t have just a single credit report. At the very least, you have three: one from each of the three major credit bureaus. Equifax, Experian, and TransUnion all maintain consumer credit information and produce their own reports. While these reports are similar and based on much of the same information, there can be major discrepancies between them, so you should be sure to request all three.
Anatomy of a credit report
We mentioned that a credit report is more than just your credit score. While each report will be different depending on the credit bureau that provides it, all should have the same four basic parts.
This section sounds simple, but it can also be extremely confusing for someone who’s never dealt with a credit report before. This section is just all of your personally identifiable information: name, addresses, date of birth, phone number, Social Security number, and other stuff like that.
The confusing part is that it can also be littered with variations, misspellings, and errors. There might be a few Social Security numbers, two or three versions of your name, and other mistakes staring you in the face.
Your first reaction might be to try to get all of this fixed, but really, it’s not a big deal. In fact, valuable credit information might be tied to some of these misspelled names, and if you remove the misspelling, the link to that information might be lost as well.
This section will make up the bulk of your report. Each account listed will include a ton of different information, from the creditor’s name to the type of credit offered to the total amount owed to your history of repayment. If you’ve ever had issues paying off your debts, this is where they’ll show up.
The public records section lists your publicly accessible financial data, which is almost never good. Generally, these records include bankruptcies, judgments against you, and tax liens. All of these things are enormously damaging to your credit, so you should hope that your public records section is empty.
Thankfully, only financial records show up here. If you’ve ever been arrested, that won’t show up on your credit report.
Finally, the inquiries section lists everyone who’s ever asked for your credit report. This list might include potential creditors as well as employers, current creditors, and even companies screening you to determine whether to market a new line of credit to you.
As already mentioned, there are two different types of inquiries. “Hard” inquiries show up when you fill out an application for credit, are visible to anyone who orders your credit report, and can slightly damage your score. “Soft” inquiries come from your own requests, as well as from requests from organizations that want to monitor your credit, are only visible to the consumer, and do not harm your credit score.
Analyzing your credit report
Now that you have a better grasp of your credit report as a concept, let’s dive into how to actually analyze your credit report, spot errors, and improve your credit score. There are nine basic steps here.
1. Access your credit report through AnnualCreditReport.com
While there are many different organizations out there that claim they want to give you access to your credit report, there’s only one official vendor: AnnualCreditReport.com. By law, all U.S. residents are entitled to a free credit report once each year from each major bureau; AnnualCreditReport.com is where you go to get it. While other sites might offer your credit report as well, they’re also likely to try to market other services that you might not be looking for, such as credit monitoring. If all you want is your report, AnnualCreditReport.com is your destination.
2. Check identifying information for accuracy
As we already mentioned, the identifying information section of your credit report is likely to have some small problems, such as misspellings of your name. While little mistakes probably aren’t a huge concern, outright errors and larger issues might be red flags for identity theft and should be addressed as soon as possible.
3. Investigate any fraud alerts
Under your name and address, you should be able to locate any fraud alerts associated with your account. These alerts list any reported incidents of fraud or identity theft. If you’ve ever reported an incident like that, you should see it here. If you see reported incidents that you aren’t already aware of, you should investigate them.
4. Know and understand your credit score
Next, look at your credit score. Your score will vary between the different credit bureaus, but each should be relatively similar. If they’re not, something is probably wrong.
Generally, credit scores break down like this:
720 and up: Excellent
No matter where your credit score is at, you should understand how it got there. Major factors include your payment history, your total debts, and the length of your credit history. Only by understanding these factors can you figure out how to improve your score.
Luckily, your credit report should also include notations next to your score that explain which factors have most influenced it. Consider these notations as hints from the credit bureaus to help you to improve your score.
5. Analyze the “public records” section
The hope is that you won’t have any public records listed here, such as bankruptcies, judgments, or tax liens. If you do, triple-check to make sure that the information listed in this section is accurate. If you paid a lien and it’s still listed on your credit report, then it’s still doing damage to your credit and should be disputed as soon as possible.
6. Review all inquiries
If nothing else, the inquiries section can be very interesting for the average consumer. Here, you can see a list of everyone who’s checked your credit. Every time someone makes an inquiry, hard or soft, it shows up on your consumer-facing credit report. These detailed entries can help you get a better sense of which organizations actually care about your credit history. It’s good information to know.
7. Calculate your debt-to-income ratio
Your debt-to-income ratio is a numerical expression of how much of your paycheck goes toward paying off debt each month. Since your credit report lists all of your debts in one document, it makes calculating your debt-to-income ratio relatively easy.
To calculate, simply divide your total monthly payments by your monthly income and multiply by 100. If you pay a minimum of $500 in debt payments and make a salary of $2,000 per month, then your debt-to-income ratio is 25%.
Ideally, you want your debt-to-income ratio to remain under 40 percent. Anything more than that may be a red flag to creditors, who’ll assume that you’re riskier to lend to since you’re under so much financial strain already.
8. Dispute any discrepancies you find
If there are any discrepancies or outright errors on your credit report, then it’s up to you to discover them and dispute them. Unfortunately, even though they’re not your fault, no one else is going to go to the trouble of fixing these mistakes.
The process for disputing your credit report varies depending on the bureau that provided the report. Equifax, Experian, and TransUnion all have their own forms and procedures, and you’ll need to take up your dispute directly with them.
Generally, however, the process goes like this: you find your way to the bureau’s online dispute form. For ease of use, the credit report may actually list the Web address for the form. Fill out the form and you’ll kick off an investigative process within the credit bureau.
This investigative process takes between 30 and 45 days and entails the bureau contacting your creditors and checking up on whatever details you’ve disputed. During this time, the item in question should be marked as “disputed” on your report.
If the bureau determines that you’re correct, it’ll fix or remove the disputed item from your report. If it disagrees and you feel like your dispute was not handled correctly, you still have recourse through the Consumer Financial Protection Bureau, which will help to take the dispute further.
9. Make a plan to improve your score
Unless you are at 750 or higher, your credit score probably has room for improvement. While there’s no way to improve your credit score overnight, it’s not that difficult to do over a period of time. As long as you pay your bills on time, pay down your debts aggressively, and avoid opening new lines of credit, you should be on track toward improving your score as well as your overall financial future.
If you feel like you need a little bit of help paying down your debts, National Debt Relief is here for you. We help people with serious debt burdens to get back on track and become debt-free. Contact us today to go over your debt relief options and figure out your best path forward.