How To Read Your Credit Report?

If you are new to reading credit reports, it can be an overwhelming experience. It can be even more difficult if you have multiple accounts.

To simplify this, it is important to study the meaning of all the different components of a credit report and understand how they all fit together. Analyzing your report will be much easier once you uncover the basics of the information contained within it. 

What’s In It?

A credit report can be considered a report card for your credit history. Lenders use this history along with your credit score to determine the risk factor of lending to you. 

While a report has several components, here are the eight most important ones:

Revolving Accounts 

Credit cards and lines of credit are two common types of revolving accounts that allow you to borrow frequently. As you make purchases and payments, the balance in these accounts will keep fluctuating.

Installment Loans 

Installment loans offer borrowers a one-time lump sum amount which can be repaid through fixed monthly payments stretched over a defined period. Student loans, auto loans, and mortgage loans are popular examples of installment loans. Personal loans, which are unsecured, will also appear under installment loans in your report. These are good ways to build credit history, or you can even opt for a credit builder loan to establish a better repayment history to impress lenders.

Open & Closed Accounts 

Both of these types of accounts appear on your report. However, there is an exception, given closed and negative accounts older than seven years are not considered. When an account has been closed in good standing, it will continue to appear for approximately 10 years or the limit specified by the credit bureau.

Payment History 

All payment history, except negative history older than seven years, will appear on your report. Usually, the payment history of the last two years appears, but older ‘past-due’ payment statuses might also be included.

Credit & Loan Applications

All your recent applications will appear in the inquiries section of your credit report. This record will remain available in your report for a maximum period of two years.

Collection Accounts 

If your unpaid debts were sent to a collection agency, that record would appear on your credit report. The records would appear irrespective of the amount of debt. So even if a debt of $10 was reported to a collection agency, it will still appear in your report. 

You must remain careful when it comes to your bills irrespective of whether they get reported to collection agencies or not. Doing so helps in maintaining a healthy credit score.

Public Records 

Public records contain the information that can show your credit history in a bad light. It could include any legal proceedings that have been processed by the court system such as repossessions, bankruptcy, and even foreclosures. You can’t contest the claims or prevent them from appearing on your report.

In the case of repossession and foreclosure, the records in your report will continue appearing for up to seven years. For cases related to bankruptcy, the records can appear for up to 10 years.

Inquiries

In this section, you will find detailed listings of each business that requested your report. There are two types of credit inquiries: soft and hard inquiries. 

Soft inquiries are made by companies that want to share their promotional materials with you. It will also include the current creditors inspecting your account but won’t affect your credit score. 

Hard inquiries are made by lenders when you apply for a loan, mortgage, or credit card. Hard inquiries may cause your credit score to drop by a few points. To avoid this situation, you can avoid authorizing permission for a hard inquiry, however, this may come at the expense of approval for credit. These records usually remain in your account for a period of two years.

Where Can I Find My Credit Report? 

You can receive a free copy of your credit report each year from each credit bureau including Experian, Equifax, and TransUnion.

You need to make a special request for a report given it will not automatically be delivered to you unless you have registered and paid for a specialty monitoring service. The components in the report will vary with each agency so it is worth checking with different agencies, especially if errors appear that are negatively impacting your score.

Conclusion

Understanding the finer nuances and meaning of credit reports is important in establishing your financial standing and stability. If you are new to the world of credit, you should study the above points to develop a basic understanding of the credit system and how to improve your creditworthiness.