How to Read a Credit Report

Getting a copy of your credit report is a snap. Reading your credit report is not.

A credit report is jam-packed with information reflecting credit choices, obligations, and payment patterns. Your specific credit report contains detailed records of your credit and loan accounts, plus public records, collection records, your employment history, and even current and former addresses.

That's a lot of information to take in and study detail by detail — even when the subject is a familiar one — you and your financial choices.

And this is all information you'll need to scrutinize carefully, especially if you have plans to buy a house or a car. Errors on your credit report could hurt your chances of qualifying for a loan or force you to pay a higher interest rate than you deserve.

And with everyone from banks, lenders, and credit card companies to potential employers, landlords, and even utility and cell phone companies eyeing your credit report, it's important that you understand everything your credit report says about you.

Getting a copy of your credit report is easy. Thanks to the Fair and Accurate Credit Transactions Act (FACT), you're entitled to a free copy of your credit report from each of the three major credit bureaus every 12 months. To request a free copy of your credit report, all you need to do is visit www.AnnualCreditReport.com or call 1-877-322-8228.

The first major section of a credit report contains personal information, including your name, Social Security number, date of birth, phone number, current and previous addresses, and current and previous employers. Study each piece of data carefully.

If you see a Social Security number that doesn't match yours or the wrong birth date, you need to alert the credit reporting agency about the error. Another consumer's credit data may be mixed in with yours.

And you'll also want to take a close look at the current and previous addresses and employers' sections. A long list of places you've never lived could be another sign that another consumer's credit file has been mixed with your own. Even worse, this incorrect information could be an indication that an identity thief has been applying for credit in your name.

The personal data section also provides a space for consumer statements. Once you review a credit report, you may want to add a comment to this section. If you've been a victim of identity theft, you'll want to write a statement detailing the date you learned about the theft and the accounts affected.

The consumer statement section is your opportunity to comment on any accurate but negative information listed in your credit file. If you fell behind on some payments because of illness or loss of a job, you can say so here. And if you withheld payment on a credit account because of a payment dispute with a merchant, you can give your side of the dispute here.

Another important part of the personal information section of your credit report is the public records section. This section lists any public record information about you from local, state and federal courts, including foreclosures, liens, suits, judgments, bankruptcy filings, and collection items. Some states include overdue child support in this section.

The negative information listed in this section will stay on your credit file for quite a while — seven years or longer. So it's important that all public information is accurate. Bankruptcy information can stay on your credit report for as long as 10 years, and unpaid tax liens can remain for up to 15 years. Several collection items that you don't recognize could be a sign of identity theft, so watch out for any unfamiliar or suspicious public records.

The next major section of your credit report details your credit account histories. Information about mortgages, credit cards, auto loans, and student loans will be listed here in excruciating detail. Each account history includes the name of the company handling the account, such as the lender or mortgage company; the date the account was opened; the credit limit or loan amount; the account balance; the monthly payment; the most recent payment; the payment status such as the amount left unpaid after a due date and the number of days past due; and the account status (either opened or closed).

This section detailing your handling of credit accounts is the real nitty-gritty section of your credit report. You'll want to make sure the details are right.

Take a close look at each account listed. Did you open this account? Does it accurately reflect your payment history? If you see a negative payment history on an account you don't recognize, you'll want to alert the credit bureau of the error as soon as possible, especially if you have plans to apply for a car loan or home mortgage in the coming months. You don't want an error or the work of an identity thief spoiling your chances for such an important loan.

You may be surprised at the sheer number of accounts listed in this section. Credit accounts that you opened long ago will be listed here. You may be tempted to close some of these accounts to simplify your credit file, but that's not a great idea. Older, open, and active accounts with positive payment history actually help boost your credit score. So leave those older accounts alone.

A final key section of your credit report lists inquiries made to your credit history in the past two years. If a company has peeked at your credit file, the inquiry will be listed here.

Companies that access consumer credit files on a regular basis include banks, credit card companies, cell phone companies and utility companies. Potential employers and landlords may check your credit report as well.

Don't be surprised if there are plenty of company names in the inquiries section that you don't recognize. These are companies that want your business and they check your credit before sending you a promotional offer in the mail. Credit inquiries from businesses seeking your business won't impact your credit score in any way. Credit inquiries from companies that you already do business with, such as banks and credit card companies, won't affect your score either. Credit card companies in particular like to keep a close watch on their customers' credit files.

The inquiries that will impact your credit score are the ones you initiate when you apply for a mortgage, car loan, credit card or other form of credit. When you fill out an application for credit, you give the lender permission to pull a copy of your credit report. About 10 percent of your credit score is affected by these inquiries. So study each one carefully. Did you apply for credit from a particular lender, or was it a thief using your identity?

Be sure to review copies of your credit report from each of the three national credit reporting bureaus: TransUnion, Equifax and Experian.

Each national bureau obtains the credit data listed in its consumer credit reports independently. And some creditors may not send reports to all three credit reporting bureaus. Because of this, your credit files from the three national bureaus could be vary significantly.

Reading your credit report is not light reading, but it is essential for maintaining an accurate credit record. So make reading your credit report from each of the national credit reporting bureaus part of your yearly financial checkup.