How To Read And Understand Your Credit Report

Your credit report. A mysterious and inaccessible document. The realm of sages and mystics.

No, not really. Actually there are about a million places to get it - you see the ads on TV all the time. You can order it directly from the credit bureaus. If you have recently been denied credit, you can get a copy of it for free.

Another free source is "https://www.annualcreditreport.com/". This is the only official place to receive your annual credit report, at no cost, from all three bureaus. The catch is that you can only get it once a year. That is, you can get one report, from each bureau once per year. It doesn't necessarily have to be at the same time. You could conceivably get your Experion report in January, your TransUnion in June, and your Equifax in December. I'm trying to think of a logical reason to do that, and I frankly can't. Anyway, the point is that if you want your report more often, you have to pay. It runs about 10 dollars per report.

A word of advice, one credit report, from one bureau is useless. Creditors subscribe to bureaus and may only report to one, or two, or none. So what is on your Experion report, may not be on your Equifax. You need all three to do any good.

I personally prefer the "three in one" reports. You do have to pay for them, but they are so much easier to read and understand. They are written in a user friendly format, designed for the consumer. And being able to understand the report, certainly makes it easier to clean up.

So, what does it all mean?

Experion, Transunion & Equifax are the three major credit reporting agencies. I would start out at AnnualCreditReport.com and get a free copy of all three reports. They can vary quite a bit.

Once you have the reports, its time to decipher them. For this, you'll need a NASA supercomputer and several M.I.T. graduates - or at least thats the way you will feel when you look at it the first time.

The data on your credit report is what is responsible for your FICO score. This is a number between 1 and 1000 that is used by creditors to rate the likelihood that you will pay and pay on time. The FICO was developed by the Fair Isaac Corporation (F.I. CO.).

Your report consists of four sections

1. Your personal information (name, address, birthday, etc).

2. Your credit history (all credit accounts with payment history that have been submitted to that particular credit bureau).

3. Public records (liens, judgments, etc).

4. Inquiries. Every time you apply for credit, an inquiry is added to your report. To many inquiries lower your score.

First, look at your identifying information. It's the first section of the report. There may be more than one spelling of your name because someone reported the information incorrectly. There may also be more than one social security number for the same reason. Don't be too concerned about this. They will just leave the information on the report because it doesn't change your score or affect credit decisions. Some reports may also list your spouses name, your current or past employers, your current or past addresses, even your phone or drivers license number.

In the next section, your credit and payment history is listed. On some reports the accounts are called "trade lines". There will be a listing of the creditor names and account numbers which are usually encoded for security. It may show more than one account from the same creditor. If you have two American Express cards for example. Sometimes you will get a separate listing if you move to a different location and your account is transfered to a new location.

The listing will also include:

1. When you opened the account.

2. Whether it is a mortgage, car loan, installment account, revolving credit line, etc.

3. Whether the account is in your name alone, or there is another person on the account.

4. The amount of the original loan, or in the case of a revolving account, the highest balance that you have carried.

5. How much you still owe.

6. Either the minimum payment, or the amount of the fixed payment.

7. The account status. Is it open, closed, paid as agreed, no longer active.

The Experian report is easy to read. Its states plainly - "never pays late" or "typically pays 30/60/90 days late". In the comments, it may state that the account has been "charged off". This means that the creditor has just taken the tax loss for the debt, and given up. On these accounts, you will be getting calls from a collection agency instead of from the creditor.

Other reports are a little bit more cryptic. They use codes for payment that range from 1 - 9. If you have an R1 or I1 it means that you have a good payment history.

This brings us to the public records section. Any listing in this section is bad. There is nothing good that is listed here. Financial negatives like bankruptcies, judgments and tax liens are listed here and are items that will put your credit in the garbage. They linger around for 10 or more years. This section indicates that you have had a serious financial problem. If there is anyway at all that you can avoid getting a listing in this section, you will be much better off in the long run. Financial problems come and go. Late payments sometimes occur. Public records stick like glue.

Contrary to public belief, this section lists only financial data. Nothing about your criminal history or anything personal.

The last section is "inquiries". You will get a listing here every time anyone requests a copy of your credit history. Every time you apply for a credit card, car loan or mortgage, it will get listed here. You will even see a listing that you added when you requested a copy. This is really valuable information.

There are two parts to this section. One is "hard" inquiries. These are inquiries that were initiated by a request for credit. When you applied for your car loan, or your Visa card, this is where it is listed. The hard inquiries section can affect your score.

The other section is "soft" inquiries (kinda makes sense really). These are inquiries that were added when a company wants to send you some kind of sales material (i.e. "You've been prequalified for a $10,000 loan", etc.). It will also include existing creditors who occasionally request a report in order to monitor accounts. This section is only on reports that are given to the consumer, and it is only for information purposes. The soft inquiries section has no effect on your score.

As a general rule, inquiries are just ignored by the FICO scoring process. There is for, for instance, a buffer of at least 30 days to allow for mortgage and auto loan shopping. This means that you can apply for as many auto or home loans as you want in a 30 day period, and it has no effect on your score.

Two or more hard inquiries in a 14 day period are also counted as just one inquiry. The moral of this story is as long as you don't apply for a credit card every two weeks, the inquiries have an extremely limited effect on your score.

Its common to have errors on your credit report. By some estimates, up to 80% of all reports have some incorrect information. If you find that a mistake has been made on your report, notify the credit bureau, in writing, that you want it removed. They will remove it immediately while it is being investigated. If they cannot verify the information, then it will stay off. You should monitor your report, because sometimes removed information returns. This is a marathon, not a sprint. maintaining good credit and an accurate credit report requires a degree of vigilance.

Ted Batron is a financial expert who specializes in debt counseling and custom debt elimination plans. He has developed a short eCourse that's a great primer for those who are want to learn how to negotiate, eliminate and settle credit card debt at a 30-70% discount and become debt free. If you would like to know more about Ted Batrons "5 Debt Settlement Secrets You Should Know" eCourse, visit http://www.No-Debt.net