Understanding your credit is a crucial step on the path to a stable financial outlook. Whether you’re looking for a loan, a higher limit on a credit card, or a better insurance rate, raising your credit score will enable you to achieve many financial goals. Credit scores can influence some aspects of your life that you may not have considered – in some states, your credit score can even affect your ability to get a job. If you’re looking at a credit report and feeling intimidated by the many numbers and abbreviations you see, have no fear. Let’s take a closer look at the finer details of a credit report.
Finding the Right Reports
There are three major agencies that report credit in the United States: Experian, Equifax, and TransUnion. As described by federal law, every citizen is entitled to a free copy of each report once per year. While you might think that these reports would have similar information, sometimes they may lack important data. Creditors send information to whichever agency they prefer, so you will have to acquire all three reports in order to get a full understanding of your credit. Make sure to order the report directly from the credit bureau so you can see the consumer version rather than the more technical reports designed for industry experts.
Breaking Down the Report
A standard credit report contains four sections: 1) identifying information, 2) credit history, 3) public records, and 4) inquiries. Let’s take a closer look at the stand-out information in each section.
Identifying Information – This section includes simple information like your name, address, date of birth, and other standard characteristics that identify you. What might not seem so standard are the variations on your name and social security number. It may seem odd to have multiple spellings of your name and multiple social security numbers, but these misreported details are usually harmless. However, egregious errors could indicate fraud. Just to be safe, it’s a good idea to contact the agency and double check if you notice any discrepancies.
Credit History – This list includes your past bill payments and other relevant financial events. If you’ve paid your bills consistently and on time, you should see a nice stable history of “good debt” that will help you build a strong credit score over time. This section will also provide details regarding the type of credit (installment or revolving credit) as well as other details including how much you still owe. Collection accounts may also be listed, and these will describe such debts as unpaid medical bills that have been turned over to collection agencies. These unpaid debts tend to bring down your credit score and should be addressed promptly.
Public Records – This is the dark side of your credit score. Public records display major problems such as bankruptcies, tax liens, and court judgments – all of which will demolish good credit. Arrests, lawsuits, and other unfortunate legal encounters are not recorded. After a lengthy period of time, some of these records may be removed.
Inquiries – This list includes anyone and everyone who has asked to see your credit. Companies, individuals, and other entities that have sought to learn more about your financial responsibility conduct a “soft inquiry” whereas inquiries originated by you will show up as “hard inquiries.” This detailed list will give you a better understanding of how intricately your credit score is connected to your business matters.
When you have time to give your credit reports a close inspection, make sure to check for any errors that might be dragging down your score. According to Bankrate, one in five consumers will have an error on their credit reports from the three major bureaus. In order to dispute an error with the credit bureau, you’ll need to fill out a form that will be processed and dealt with after approximately thirty to forty-five days. If for some reason you feel that your error dispute has been mishandled, you can also file a complaint with the Consumer Financial Protection Bureau.
Credit reports may seem dense at first but, with a little patience and guidance, you should be able to decipher crucial information with ease. A solid credit score can help you achieve many financial goals in life. Once you understand your credit report, you can begin to focus on ways to raise your score and practice good financial habits.