How to Read a Credit Report [ULTIMATE GUIDE for 2021]

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The importance of a credit report remains consistent. It may be only a document, but it plays an important role in your life, from day-to-day activities to major milestones.

Some of the benefits of keeping track of your credit report are:

  • checking how eligible you are for a loan
  • avoiding debt that’s not yours
  • proving that you aren’t guilty of credit delinquencies

But do you know how to read a credit report? In this article, we’ll explain in detail what a credit report is, what information it contains, and how to read it once you get it.

What is a credit report?

Did you know that the origin of our modern-day system of credit reporting dates back to the early 19th century? It began when a group of English tailors came together to swap information about customers who failed to settle their debts.

A credit report is often confused with the credit score. While a credit score is a number, calculated based on your credit history, a credit report contains in-depth information of a person’s credit history. Credit bureaus gather financial information about people and create credit reports based on that information. Lenders later use this report to determine a loan applicant’s creditworthiness.

A credit report contains both positive and negative records from your credit history. Having good credit history significantly increases a person’s chances of taking out loans, since the lender will see the loan applicant as responsible and reliable.

What shows on a credit report?

All credit reports contain basically the same information. It’s arranged into four sections: personal information, public record information, creditor information, and credit inquiries.

A credit report can tell many things about you:

  • A record of your credit accounts. It displays bank and credit card accounts as well as other credit arrangements such as outstanding loan agreements or utility company debts
  • The date any credit accounts were opened as well as the amount of credit
  • Information about the type of account
  • The current balance on each account
  • Your payment history
  • The credit limits and total loan amounts
  • Any bankruptcies or tax liens
  • Your current account provider
  • Your ID information (name, address, Social Security number)
  • Electoral register information

What is a credit report used for?

Many lenders check your credit report to make decisions about you. Your credit report is an important source of information for understanding your credit score. A credit score is a three-digit number used by potential lenders to determine how likely you are to make your monthly payments on time.

High credit scores generally reflect positive information on your credit report, while low credit scores indicate the presence of negative information.

If you want to improve your credit score you can try using the services of credit repair companies. They’ll review your credit report, dispute any questionable negative information, and educate you on the best ways of optimizing your credit report.

How to read a credit report?

According to federal law, you can get a free copy of your credit report once a year from each of the three major credit reporting agencies: Equifax, Experian, and TransUnion. The quickest way to get a copy is by using the government-mandated AnnualCreditReport.com website. Due to the coronavirus pandemic, the website offers free weekly updates until April 20, 2022.

Credit Report Information

Once you get your credit report, you should check all the sections. Here’s what you should pay attention to in each one:

Personal information

Personal information is usually the first thing to appear in your report, though each bureau arranges sections of a credit report in its own way. This section of the credit report contains information relating to your identity, such as your name, address, date of birth, employment data, current and previous accounts, and Social Security number. You should check the details provided under this section. If there is an incorrect address in the report or your name has been misspelled, you should report this to the Credit Rating Agency (CRA).

Public records

This section of the credit report lists bankruptcies, insolvency records, foreclosures, and judgments, which can affect your credit score. These public records refer to finance-related activities, so criminal information such as arrests and convictions isn’t included.

Account information

This section of the credit report will have information related to your present and past credit accounts. The following details should be checked:

  • Date of opening
  • Creditor’s contact information
  • Balance information
  • Payment history
  • Account type (e.g. open, installment, revolving)
  • Account ownership (individual or joint)
  • Payment status

Credit inquiries

Inquiries refer to when a legitimate business requests your credit report from a credit bureau. There are two types of inquiries—hard and soft. Hard inquiries are recorded on your credit report and count toward your credit scores. Anyone who checks your credit report can see these inquiries.

A soft inquiry (or quotation search) happens when your credit report is reviewed because you have applied for credit or other services. This type of inquiry doesn’t affect your credit score in any way.

How to read a TransUnion credit report?

Let’s take a look at the sections of a TransUnion credit report and learn how to understand them.

  • The Subscriber-Provided Input and Information section displays a record of the actual consumer information that was entered to locate the file.
  • The Consumer Demographic Information helps confirm an individual’s identity by providing information from data furnishers, including the individual’s name, current and previous addresses, SSN (Social Security number), birth date, telephone number, and employment history.
  • The Special Messages section highlights specific credit file conditions and is especially important as some information may help fulfill certain compliance requirements.
  • The Model Profile section is included in your report when you subscribe to and receive certain scores or a Vantage score. Risk scores are used as a way to predict future credit performance.
  • The Credit summary section provides a snapshot of the activity on the consumer’s credit report for either the total file history or just for the last 12 months.
  • The Auto summary displays relevant auto credit data in an easy-to-read format providing greater insights into the consumer’s financial situation.
  • The Public Records section features information obtained from the county, state, and federal courts, and includes items such as civil judgments, state tax liens, federal tax liens, and bankruptcies.
  • The Collections section lists consumer accounts placed with a debt-collecting firm.
  • The Trades section covers the consumer’s credit account activities which can be sorted by the most derogatory or by date, and you can choose to see the payment pattern as either 12 or 24-month groupings.
  • The Inquiries section lists companies that have requested the consumer’s credit file with the consumer’s consent. It may also include statements to help protect consumers against fraud.
  • The Credit Report Serviced By section provides contact information to consumers in the event of adverse action.

Why should you check your credit report?

Checking your credit report is important if you want to have control over your financial life. Here are a few reasons why:

  • Monitoring your credit score can help you to understand your credit position. If your credit score is lower than you expect, it could be a sign that your credit report contains mistakes. In the case of mistakes in your credit report, you can dispute them and correct the data.
  • A credit report helps you to deal with fraud. Having a credit report at hand, you can make sure that no one has used your documents to obtain a loan, or you will be able to identify the fact of fraud.
  • You will be able to see what information about you is available to the lender for making decisions, and it will also show the reasons why the bank may deny you the loan.

It is very important to know how to read your credit report and to periodically correct any inaccurate information that may appear there. You are entitled to receive copies of your credit report and the credit bureau is obliged to correct any inaccurate information that may be found there.

Key findings

  • A credit report is a document that reflects the state of your credit history
  • Your credit report contains factual data about your credit cards and loans
  • Lenders use this information when they have to decide whether to lend you money or not
  • Using the government-mandated website you can get a free copy of your credit report weekly until April 20, 2022
  • Make sure to check your credit report regularly

How often should you check your own credit report?

According to the Consumer Financial Protection Bureau, you should check your credit reports once a year at a minimum. But the sooner you pinpoint any of these errors, the better. That’s why you may choose to review your reports more often than once a year.

When you find mistakes in your credit report, you have the right to dispute any information on your credit report that you believe to be wrong. Generally, credit reference agencies must investigate the dispute within 30 days of receiving it.

Does checking your credit report lower your credit score?

Many people tend to worry that checking their credit reports might lower their scores. But there’s no need to worry. Checking your credit report yourself doesn’t lower your credit score. When you request a copy of your credit report and check your score yourself, that’s known as a “soft” inquiry. When lenders check your credit for making a decision whether to give you a loan or a credit card, it’s treated as a hard inquiry.

“Soft inquiries don’t negatively affect your credit score at all. These are mainly used for reasons other than underwriting for a loan,” says Frank Acocella, a corporate attorney and founding member of CounselPro Lending. Unlike soft inquiries, hard inquiries can have a negative impact on your credit scores.

Is it safe to check your credit report online?

Getting a free credit report is safe if you carefully choose the website you use to get it. Checking your credit scores on the government website especially created for this purpose is the safest way, as the website has SSL encryption and is considered a secure site.

Conclusion

When it comes to credit, one of the best habits is regularly checking your report. It is a great way to make sure that all the information is accurate. Just as importantly, it can help you spot the signs of identity theft. If you think your identity is stolen, you can contact some of the best identity theft companies to help you restore the damage.

You can receive copies of your credit report once a year from each of the three nationwide consumer credit agencies. You are also entitled to check your credit report for free by visiting AnnualCreditReport.com.

FAQ

What does ‘date opened’ mean on a credit report?

The date opened on a credit report tells you when you first opened the account. Lenders pay attention to this date because it can determine the length of your credit history. If you have very old credit accounts, they can have a positive impact on your credit score. The older your credit card accounts are, the higher your score.

What is a bad credit score?

If you are going to apply for a credit card, buy a car, or take out a mortgage, you might start asking yourself “What is a bad credit score?”. After analyzing your payment history, the amount of your debt liabilities, the number of credit cards and loans, and the duration of your credit history, credit bureaus will give an assessment of your creditworthiness in the range of 300 up to 850. A score below 670 will mean that you may have difficulties with getting a loan. A score above 800 characterizes you as an exceptionally reliable borrower.

How to fix my credit score?

Learning how to read a credit report lets you check the information your credit scores are based on and see if any errors are lowering your score. The first step for understanding how to fix your credit score is very simple: check each section of your credit report carefully. It will take time and discipline to correct your credit history. You may need to consult professionals to help you consolidate debt or organize your budget in such a way as to pay all your bills on time.

ABOUT AUTHOR

I learned a lot about finance after working for a digital marketing company specializing in investing and trading stocks, forex, etc. After that, I got exposed to other verticals such as wealth management and personal finance, which further improved my understanding of the financial world.

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