How to read and understand your credit report

mm Paul Verbiton February 18, 2020
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credit report

It’s pretty essential to have a review of your credit periodically. But your credit report can be confusing to navigate as it contains a lot of information. Here’s how to interpret and understand your report.

If you’re reading a report for the first time, or if your report includes a lot of activities, a credit report can be complicated. Don’t let that prevent you from keeping up with your credit. You find it pretty easy to read once you learn how to.

For many reasons, experts recommend that you check your credit report once a year. The credit report is simply a collection of your debt history and can, therefore, affect your ability to open financial accounts as well as your loan interest rates.

To have an annual review of your report helps ensure your report is accurate and up-to-date. Again, if you’re a victim of identity theft, your report is likely to contain errors. Above all, reviewing your credit keeps you conscious of your financial situation.

The Anatomy of Your Credit Report

You might see several sections in your report. Still, most of the information it contains are grouped into four major categories, which are, creditor information, personal information, public record information, and credit inquiries.

Personal Information

This section is quite self-explanatory, but it mainly includes:

– Your name and aliases
– Social security number
– Date of birth
– Employment data
– Public Record Information
– Current address
– Previous address

Public Record Information

If you have any open legal issues connected to your financial situation, they’ll all reflect in this section. These issues include:

– Bankruptcies
– Wage garnishments
– Liens
– Judgments

If you are looking at a TransUnion report, you’ll also find an estimated date of removal for each of the items.

Creditor Information

This section contains the meat of your report. It also contains all your existing lines of credit. If you have a credit turned over to a collection agency, it’ll also be included.

Some of the basic information each account section contains include:

– The account status: Open, closed, charged-off
– The responsibility of the account: Individual or joint
– The account balance
– Most recent payment
– Past due information
– Your credit limit

Generally, your good accounts and adverse accounts are split:

Adverse Accounts (negative item)

These are the accounts that negatively affect your credit. If you own an account in this section, you are likely to have made late payments, the account might have been sent to a collection agency, or the balance might be outstanding.

All three credit bureaus (TransUnion, Experian, and Equifax) let you dispute any of the accounts in this section. If the accounts are undoubtedly adverse, they’ll be discarded from your report after a time frame of seven years. As mentioned earlier, if you’re looking at a TransUnion report, you will see the date of removal.

Good Accounts (Accounts in good standing, satisfactory accounts): These accounts have been paid in full and on time.

Terms you should know

Charge-off, payment after charge-off: If your account status is “charged-off,” this virtually means your creditor has given up on you and charged the amount off as his loss. 

Revolving account: These are accounts that you don’t need to pay every month fully. You are given a choice to revolve your credit and pay interest on the amount you decide to revolve.

Installment account: These accounts are with fixed payments over a fixed time frame.

Open account: These are rare to come by on your credit report. The accounts require you to pay the balance in full each month. An example is a utility company.

Collection account: If your account was transferred to a third-party collection agency, the credit shows up as a collection account, even if you’ve paid the amount.

Credit Inquiries

This section contains individuals or businesses who have reviewed your credit report. For example, it might include a bank with which you opened an account or a mortgage lender – if you’re trying to apply for a home loan.  There are some websites that help you repair your credit, get out of debt, find the best loans, savings & checking accounts, and other financial products.

College Answer explains that there are two types of inquiries: Hard inquiries and soft inquiries.

Hard Inquiries: These are made by lenders when you’ve requested for a loan or line of credit. If a lot is made within a specified period, this is likely to count against your credit score.

Soft Inquiries: These are made when a marketing agency “pre-approves” you for a line of credit or when you check out your credit report.

Learning the Codes

Here are some various status codes you might come across, and what they imply:

CURR ACCT: The account is current and in good condition

CUR WAS 30-2: The account is existing but was 30 days late two times

PAID: Account balance is paid off

CHARGOFF: Unpaid balance is charged off, and credit grantor is no longer seeking balance (likely to have been sent to collections)

COLLECT: Account is extremely past due and has been forward to collections

FORECLOSURE: Foreclosed property

BKLIQREQ: Debt is forgiven

DELINQ 60: Account past due for 60 days

How Your Fico Score is calculated

Your credit score is based on five main categories. They are:

Payment history (35%): Payment history indicates whether you’ve paid past accounts when due. So if you endeavor to make payments on time, it will increase your credit score. However, a few late payments do not automatically kill your score. Overall a good credit picture can surpass one or two records of late credit card payments.

Amounts owed (30%): Lenders want to know how much you owe. If you’re reaching your credit limit for an account, it may hurt your credit score.

Length of credit records (15 percent): A more extended credit history will make an increment to your credit score, as stated by FICO also considers how long you’ve been using the accounts.

New credit (10%): Inquiries into your new lines of credit tend to decrease your score.

Types of credit (10%): Your score put into consideration your mix of credit cards, installment loans, finance company accounts, mortgage loans, retail accounts. It also puts into consideration the number of accounts you have opened. MyFico also states that closing an account doesn’t make its record; it will still reflect on your report.

Dispute Any Mistakes

If you notice that your report contains any error, you can file a dispute. All the three main credit reporting agencies let you file disputes online. You can also file your dispute by mail. The Federal Trade Commission gives sample dispute letters.

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Paul Verbiton

I enjoy spotting opportunities and doing my best to grab them if I can. I am eager to see the world, I love taking photos and writing, coming up with topics that are pleasant to read, funny, and interesting at the same time.

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