How to Read and Understand Your Credit Report

So you got up enough nerve to order your free credit report from www.annualcreditreport.com either online or by phone or you went the paper route and filled out the form and sent it in and now you have this stack of paper that you do not know exactly what to do with. It’s a big and intimidating stack of paper…it’s your credit report.

Let me take a side bar for one moment…

I think that it is interesting that prior to Fair and Accurate Credit Transactions Act (FACTA) legislation, 0f 2003, which allows for individuals to order one free copy of their credit files from each of the three major credit reporting agencies, Equifax, Experian, Trans union, per year, individuals had to pay for their credit files unless they were denied credit or a victim of ID theft. Now with this legislation you can order one copy free from each of the three major credit reporting agencies per year. So, just like changing the oil in your car after so many miles, you should pull a credit report every four months to check it and make sure everything is accurate. The average time it takes an individual to find out that he has become a victim of ID theft is 15 months. An ID theft can buy a lot of stuff with your information in 15 months.

…getting back to where I was

So, now you have this stack of paper in front of you and you are not quite sure what to do with it. It is your credit file and it contains credit and other information about you. Yes, someone has been keeping track of how you paid your debts, where you worked, if you have paid your taxes on time, and even if you have been shopping around for the best credit deal on furniture.

Your credit file or credit report, only has four sections; identifying information, public record information, credit history, and inquires, that’s it. That big stack of paper boils down to that. Let’s talk about the different sections.

The Four Sections of Credit Report

The first section or the identifying information section contains personal identifying information about you. Information in this section includes your name and address, where you have worked in the past and your social security number. Once you find this section in that stack of paper, you want to check and make sure that the information on your report is accurate. Usually this will be the first section or the first things you will see on your report.

Next is the public record information. This is the section that would contain any liens, judgments, and bankruptcies against you. You want to try and keep this section empty because liens, judgments, and bankruptcies adversely affect credit scores. Furthermore they can stay on your credit report for long periods of time before being removed.

The payment history section is next. This is the section that is the largest because it contains all credit history information such as accounts, dates you opened accounts, credit limits and if you are current on your payments. Keep in mind that the information you are looking at is your information. You should know who you paid on time and who you did not. Look over the histories. Look over the open accounts. Make sure the information is yours. If you find an account that is not yours or an error, send the credit bureau a letter stating the discrepancy.

By the way your payment history makes up 35% of your credit score. If you want to improve your credit score…pay your bills on time.

And finally the inquires section. This section includes inquires for credit that either you or others have made or initiated. There are two types of inquires, soft and hard. Soft inquires are inquires for credit made by others. Those preapproved credit card applications you get in the mail everyday are soft inquires. You did not initiate the inquiry. They are sent to you after the company has made a soft inquire on your credit file and deemed you a responsible credit risk for their product.

Hard inquires are inquires for credit that you initiate. For example, you go into the furniture store and fill out a credit application to buy furniture on credit. Too many hard inquires may adversely affect your credit score.

Now, stop just looking at the stack of paper. Pick it up and really look it over. Do not be intimidated. Remember it is your information and there are only four sections: identifying information, public record information, payment history, and inquires. Find these sections, look them over, and make sure your information is correct!

Article by Wil G.

Related posts:

1. How to Order a Free Copy of Your Credit Report