Kieran needed a car and went to a Honda dealership. She found an Accord that she fell in love with. She was crush to learn that financing would not be approved. There were a couple of items on her credit reports showing as defaulted and unpaid. By coincidence, she recently had gotten her credit reports for something else; but she didn’t really understand what she was looking at. The accounts were paid and had a zero balance. She later contacted the credit bureau and had the report corrected and updated. But the Honda dealer said she had to wait 90 days to re-apply. They later sold that Accord to someone else. This could have been completely avoided and Kieran would have gotten the car she wanted if she would have known what the credit report was saying. Then she would have corrected it, BEFORE she applied for the loan.
That is the purpose of this article. This information will provide a basic overview of the standard credit reports. It will give the reader a guide on how to read, and understand, their credit report.
There are only 3 major credit bureaus in America. Experian (use to be TRW), Equifax, and Trans Union. Any other bureau that may be in your local area is in some way affiliated with one of these three major bureaus. Any person, or company, that pulls your credit is getting it either directly or indirectly from one of these three bureaus. These 3 are the only credit bureaus that matter in the U.S.
So… How do you read your credit report?
It is not surprising to hear that, Experian, Equifax, and Trans Union all do their reports differently. But overall it really doesn’t matter because all credit reports are basically divided into four sections: Your Identifying Information, Your Credit History, Your Public Records, and the Inquiries which have been done on you.
1) Identifying Information: This section tells everyone who you are. Your social security number, your date of birth, and your name. Your name can be listed more than once to show each different way it has been spelled over the years. If some car dealership ran an inquiry on you 10 years ago and misspelled your name, it will be on your credit reports forever. Of course for females it is going to list your maiden last name and your married last name, then if you got divorced and went back to the maiden name, if you remarried, etc. There can be a lot of variations of your name here. The important thing is to look at each one to make sure you recognize it.
Other information in this identity section may include your include your current address, your previous addresses, and telephone numbers. Also driver’s license numbers, your employer, previous employers, your spouse name, etc. Anything that contributes to identifying who you are.
2) Credit History: This is also sometimes called the accounts list, or your trade lines. This section will list your current and active accounts as well as any credit you have had in the past that was reported to the credit bureau.
In general, this section is going to list everything in the past 7 years. Most agree that the credit bureaus computers automatically delete anything that has “the date of last activity” that exceeds 7 years. For example if you open a account at Sears in June 1995 and made payments every month, then got delinquent and made your last payment on March 2004. Then March 2004 is the “date of last activity” and when the 7 years will start counting down. Then, say you want to try and fix your credit and sent them a payment in Oct 2007. The 7 years will start all over again from Oct 2007.
Each account listed will include the name of the creditor and the account number. The Credit History section will also include:
- When you opened the account
- Whether the account is in your name alone or with another person
- Total amount of the loan, this is call the high credit limit or highest balance on a credit card
- How much you still owe
- The set monthly payments if a loan, or the minimum monthly payment if a credit card
- Current status of the account (open, inactive, closed, paid, etc.)
- How well you’ve paid the account
How well you paid on the accounts is one of the main things that everyone checking your credit is looking at. It is reflected in a two part code.
The first part is a letter that will either be an I or an R. The I means installment loan, which is a set amount and set monthly payments such as a mortgage, car loan, student loan, etc. The R stands for revolving debt such as a credit card, department store card, line of credit, etc.
The second part is a number from 1 to 9. The 1 indicates that there have been no delinquencies and the account is current and paid on time. The 9 indicates numerous delinquencies, missed payments, partial payments, etc. Obviously 1 is the best, then 9 is the worst, and then there’s all the stages in between. Bottom line, anything other than a 1 is not looked at too favorably.
The codes are not difficult to understand once they are explained. People want to see I1 and R1. However they frequently create questions. Experian has started to insert plain language description like… never pays late… typically 30 days late… defaulted… etc.
3) Public Records: This is a section that you want to be blank. It only list negatives things related to your credits that were the result of a court action. Bankruptcies, judgments, tax liens, wage garnishments, etc. An entry in this section will hurt your credit faster than anything else.
4) Inquires: Just as it sounds, this section is a list of everyone who asked to see your credit reports.
Inquiries are divided into two types. Hard inquiries are the ones you initiate by applying for something like a loan, credit card, etc. Then Soft inquiries are from companies that want to send out promotional information to a pre-qualified group, it can also be your current creditors who are monitoring your account.
You may have heard that a large number of inquiries can have a negative impact. That is true but it usually takes a very significant amount to effect you. A certain amount of inquires is expected and considered a normal part of life. If you are looking to buy something like a home, or car, you are expected to shop around, and two or more of these inquiries in the same 14 day period counts as just one inquiry.
As stated earlier, there are many credit companies who all get information either directly, or indirectly, from one of the main 3 credit bureaus. Then they format their credit reports in many different ways, and list things in different order. However they all will contain these 4 basic sections.
It is very important for you to know how to read your credit report. And to know exactly what is on it.
Some in the consumer credit industry estimate that as many as 80 percent of all credit reports have some kind of mistake, misinformation, or contains something that has not been updated.
If you find a mistake on your credit reports. You will need to contact each of the 3 main bureaus, Experian, Trans Union, and Equifax. If you have acceptable proof, especially the creditor’s own documentation like a receipt, you can fax it directly to the credit bureau. Otherwise the creditor will have to be contacted and they have 30 days to respond.
We hope this article has been a benefit to you. Our intent was to provide the basic information that would show anyone how to interpret and read a credit report. It is the only way to determine if it is correct, or if you need to take action to have it updated. If you are planning on buying a home, a car, or applying for any kind of credit in the near future, then you need to know what is on your credit reports before it is reviewed. It is never considered as an inquiry when you request your own credit reports.
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