A credit report is one of the most important consumer documents there is, but it can also be incredibly confusing. That’s why learning how to read a credit report is so important.
You need to be able to know if the information it contains is correct, or if there are errors you’ll need to fix. At the extreme, it’s even possible your credit report contains debts or other obligations that don’t belong to you.
Table of Contents:
Who Issues Your Credit Report and Where You Can Get Copies?
Credit reports are issued by the three major credit bureaus:
You can obtain a copy of your credit report from each of the three bureaus, though there will be a subscription fee if you want to get regular updates.
Alternatively, you can get a report from all three bureaus through Annual Credit Report.com. It’s the only official source where you get copies of reports from each of the three bureaus.
Under federal law, you’re legally entitled to one free copy of your credit report from each of the three bureaus each year. I strongly recommend you take advantage of that availability.
A good strategy would be to order one for each bureau at staggered intervals. For example, if you request your report from Experian on January 1, you can then order your report from TransUnion on May 1, and your Equifax credit report on September 1.
Many consumers are unaware of this, but the information reported on each can be very different. That’s because a creditor might report to only one or two of the three bureaus.
If you’re getting a report from only one, your information on that creditor may not appear. There can also be an error on one report that doesn’t appear on the others. Only by getting all three can you know for sure.
Monitor Your Credit on a Regular Basis – For Free
It’s also important to monitor your credit regularly. In addition to ordering an official copy of your credit report from each of the three bureaus each year, you can monitor your credit using free credit monitoring services.
Two of the most prominent providers are Credit Sesame and Credit Karma. While neither will provide you with a full copy of your actual credit report from any of the three bureaus, they will alert you of information that appears and periodically changes on your reports. This will at least enable you to keep general tabs on what’s going on.
You should be aware that any free credit services you sign up for won’t provide you with either an official copy of your credit report or even your actual credit score. Credit report subscriptions cost money and are never offered free.
Both the credit scores and the credit information reported by free credit monitoring services represent parallel information.
For example, you won’t get your actual FICO score – the one used by lenders – but typically a Vantage score, which is an informational score only. It will roughly approximate your FICO score, but it won’t be exact. In fact, it can vary by 20, 30, 40, or even 50 points.
You’ll need to know exactly what factors are causing your score to change. That’s how you’ll know if derogatory information is appearing on your report, or if there are errors.
For example, if your credit score falls by 30 points, that will let you know there’s a problem. The free credit monitoring services above will provide the detail you’ll need to stay on top of this information.
What Kind of Information Appears on Your Credit Report?
This is where how to read a credit report becomes incredibly important. There’s more information on the report than just your credit results. You’ll need to be fully ready to dig down into the details and make sure everything that appears on the report is correct.
A credit report is a fairly complicated document, and will usually run several pages. This is especially true if you have a long and deep credit history. Every creditor you’ve worked with over the past seven to 10 years is likely to have a line entry on the report.
The information reported can be broken down as follows:
This section will include the basic information that your credit history is connected with. Don’t just blow through this section – carefully review it for accuracy.
Any unusual variations of your name, address, Social Security, or other personal information can be an indication that your identity is being used fraudulently.
- Your Name. This isn’t just the name you commonly use. The report will likely list any variations of your name. It may show your maiden name, your name with or without your middle name/initial, or any other names you may have gone by in the past.
- Address Information. You’ll not only see your current address, but any previous addresses, or any other addresses that might be associated with your name.
- Your Social Security Number. It probably won’t be your full Social Security number, but the last four digits, preceded by Xs. This is to protect the number from unintended third parties.
- Your Birth Date. Make sure this is accurate, particularly if you have a common name, like Jane Johnson or Steven Smith. An incorrect birthdate could indicate your credit report includes information from a different person with the same name.
- Employer Information. Like your address, this will include not only your current employer but also previous employers. While it doesn’t usually affect your credit, you may want to correct information with the credit bureau if an employer you’ve never worked for is listed.
This is the core of your credit report, and where you’ll spend most of your time studying.
The types of accounts you can expect to see in this section include the following:
Information on the above credit types are reported regularly and updated each time there’s activity on the account.
Information for each credit item will include the following:
- Name and address of the creditor
- The account number of the loan or credit line
- The date the account was opened
- Account Status – open, closed, paid, transferred, in collection, or some other description
- Type of account (credit card, auto loan, etc.)
- Account ownership, which can be individual, joint, or authorized user
- The original amount of the loan, or the maximum credit limit
- The current outstanding balance and monthly payment
- Payment history
Pay close attention to all the information and make sure it’s accurate. There may be timing differences, typically when your most recent payment isn’t reflected, and that’s okay.
If no late payments are indicated on the account, you’re in good standing. But if you see something like “2X30” or “3X30, 2X60,” it means the creditor is reporting late payments. “30” denotes a payment that was more than 30 days late; “60” refers to a payment that’s more than 60 days late, while “90” means you are (or were) more than 90 days late, and so on.
If the status is “collection,” “charge off,” or similar term, the account has been terminated with an unpaid balance.
If any of this information is incorrect, you should be prepared to dispute it. We’ll get to that process in a bit.
A credit inquiry will appear on your credit report each time someone has pulled your report. This can be when you apply for credit, but it can also be when you apply for a job, an insurance policy, or to rent an apartment.
There are two reasons you should be concerned with inquiries:
- You’ll want to make sure the inquiry was one you authorized. If an inquiry appears on your credit report, and you don’t recognize it, it could indicate someone applied for credit, a job, insurance, or rental using your identity.
- If you have too many inquiries on your credit report, it will have a negative effect on your credit score. Two or three inquiries in a year won’t hurt you. But if you have a half dozen or more, it’ll lower your credit score.
The best way to avoid problems with inquiries is to make sure credit reports will be pulled only infrequently. That will not only limit the number of inquiries on your credit report, but it will make it easier for you to recall having done it.
If you’re monitoring your credit on a regular basis, you should be on constant alert for any inquiries you didn’t authorize. It’s one of the most significant warnings of identity theft, and one you should never ignore.
Credit inquiries can remain on your report for up to two years, though their impact on your credit score declines rapidly after just a few months. Generally speaking, the greatest impact of a credit inquiry is from those incurred within the past 3 to 6 months.
This section usually appears near the bottom of your credit report, but it’s important to monitor it regularly. The public records section will include any type of financial, legal action against you. That can include any of the following:
What it will not report is criminal records or motor vehicle violations. But if you have any of the above items listed under public records, it can weigh especially heavily on your credit score. And getting these items removed is virtually impossible if they’re accurate.
Be aware that public records can remain on your credit report for anywhere from seven to 10 years, or even longer if a judgment or lien remains unpaid.
Disputing Credit Errors
Simply knowing how to read a credit report is just a start. The real benefit is knowing what to do when the report contains errors. Knowing how to read a credit report is basically how you find those errors in the first place.
But let’s start with this: if any derogatory credit information is accurate, there’s no way to have it legally removed. If you have a collection, charge-off, judgment, or lien, the best strategy is to pay it off. The entry will remain on your credit report for seven to 10 years, but a paid public record is always better than an open one.
If you have late payments on current or paid loans, they can remain on your credit report for up to seven years. But time is your friend in this case since your credit score will improve as derogatory information “ages out.” For example, a late payment or paid collection that’s five years old has much less of an impact on your credit score than one that’s just a year old.
But if Information Reported is an Error…
If any information is reported in error, you can dispute it. There’s one of two ways you can do it:
- Send a letter or email to each credit bureau where the error has been reported. Dispute the error, and the credit bureau will be required by law to investigate your dispute within 30 days. If the lender confirms the information to be an error, it will be corrected by the credit bureaus.
- Contact the creditor directly. Inform them the information is an error, ask that they correct their records, and report the correct information to all three credit bureaus.
When it comes to disputing credit errors, there are two important steps you need to take:
- Provide documentation of the error. It’s possible neither the credit bureau nor the creditor will accept your claim at face value. You may need to provide evidence that a collection, lien, or judgment is paid or that a late payment was, in fact, paid on time.
- Get any acknowledgment of an error from the creditor in writing. You’ll need this in case they don’t report the corrected information to the credit bureaus. You can send a copy of your creditor letter or email to the credit bureaus, and they’ll correct the information on the reports.
If you’re disputing the error directly with the creditor, give them 30 days to report the corrected information to the credit bureaus. If they don’t do it within that timeframe, either contact them and remind them to report the corrected information, or go directly to the credit bureaus.
IMPORTANT: Credit errors must be corrected with all three credit bureaus. If you get it corrected with one, the error will still appear on the other two.
Final Thoughts on How to Read a Credit Report
As you can see, learning how to read a credit report is just Step One. Yes, you need to be able to read and interpret what’s on your report. But just as important, you need to know what to do if you identify any derogatory information.
If you have any unpaid obligations on your report, pay them off as soon as possible. And if there are any unpaid obligations or late payments reported in error, dispute them as quickly as possible. It’s usually best to do that as soon after the event as possible when the information is fresh on your mind, and supporting documentation is readily available.
But this is another compelling reason to monitor your credit report regularly. You need to know how to read a credit report and what to do when you find negative information as soon as possible after it happens.