We all know we should check our credit reports because it gives an overview of our current and past credit accounts and informs us on our ability to obtain new credit. However, the report contains a lot of info that can be difficult to understand.
Today we’re going to break this down into a handy guide so you know exactly what you’re looking at.
Before we proceed, remember that you should check your report at least once a year to ensure all the information is correct and up to date. If it has errors or worse–you have been a victim of identity theft and someone has credit in your name—this can seriously impact your ability to obtain new credit and the interest rates charged on it.
While there are several different groups that maintain credit information, here is what a typical credit report contains:
This section includes all your basic personal/identity information and it is therefore very important for it to be accurate.
You’ll see your name, social security, birth date, current and previous addresses, and often your employment information. Having the wrong or an outdated address on file is a fairly common error that can have a big impact because of mortgages attached to that address.
You might also find public legal records in this section, such as bankruptcies, court judgments, liens, and wage garnishments, which can also play a big role in your credit-worthiness. However, after several years they will be removed from your report.
Your Credit Accounts
This section makes up the bulk of your credit report and is an overview of all your credit accounts, including loans, credit cards, certain bill contracts, and other lines of credit. No matter where your credit is from, such as a $1,000 loan from the internet or an overdraft from the bank, it will be here.
It will also tell you which, if any, accounts have been sent to a collection agency due to default or non-payment—which will greatly impact your overall score.
This section will tell you when the account was opened and closed, the outstanding balance, the credit limit, and your payment history (including any times you were late paying).
Accounts in bad-standing are usually listed separately from well-maintained accounts. Bad accounts will almost always have a negative effect on your credit score and will be listed there if you have missed payments, defaulted, or the debt has been passed on to a collection agency.
An account might be listed here even if you are back on track, but struggled with payments in the past.
Fortunately, these ‘black marks’ will be removed after 7 years from the three main credit bureaus (Experian, Equifax, and TransUnion), and TransUnion will even list the date of removal in advance.
You will see various terms alongside your accounts that may be confusing. Let’s take a closer look at what they mean:
Charge-Off: A charged-off account is an account that was sent to a collection agency due to non- or slow-payment. Even if you eventually settled the debt it is still classed as such for 7 years to warn other lenders that you haven’t been timely with payments. Charge-off itself just means the lender has written off the debt as a loss.
Collection: A collection account is one that has been sent to a collection agency but hasn’t been charged-off.
Revolving: This simply refers to accounts like credit cards or lines of credit where you don’t necessarily have to pay the balance off in full each month. As long as you pay the agreed minimum, this won’t affect your credit score.
Installment: This refers to accounts that you are paying off in installments, which typically refers to loans with a fixed end date.
Open: These types of account are one that requires you to pay the balance in full every month. This might include cell phone or internet contracts or business-style lines of credit.
This is a list of entities who have viewed your credit report (I.e. carried out a credit check). This could include anyone from a landlord to a credit card company. There is two type of inquiry:
Soft: Sometimes called a soft search, this is when you check your own report or a third party service (other than the lender) goes through the pre-approval process.
Hard: These are full-blown credit checks, usually carried out when you formally apply for a loan, credit card, or another form of credit. If you apply with too many lenders in a short amount of time it can negatively affect your credit score.
This is the number used to summarize your overall credit-worthiness based on all of the information in your report. The higher the score the better, though not all agencies adhere to the same system.
The most important aspects are your payment history (have you made payments on time?), outstanding balances (how much you owe in total), length of credit history (i.e. when you first started borrowing money), credit variety (it’s better to have several different types of credit than all just credit cards), and new credit (whether you recently obtained a new credit account).
FICO (which is what the big bureaus use) ranges between 300 (very poor) to 850 (excellent).
With the above info, you should now be able to look at your credit report with an informed perspective.