How To Read Your Credit Report

Understanding Your Credit Score

Once you get a copy of your credit report, it’s important to know how to read it. There are going to be an awful lot of numbers, abbreviations and terms you’ve never seen before. Trade lines, charge-offs, account review inquiries — how do you read this thing?

Even though you get one free credit report each year, experts suggest that if you are serious about improving your credit score, you need to examine a report from each of the three major credit reporting agencies.  This will, however cost you a small fee from the other two, so keep that in mind.

Your credit report is divided into 4 sections:

1) Identifying Information

2) Credit History

3) Public Records

4) Inquiries

Click on the links to read more on each section.

Identifying Information – Credit Report

Identifying information is just that — information to identify you. Look at it closely to make sure it’s accurate. It’s not unusual for there to be two or three spellings of your name or more than one Social Security number. That’s usually because someone reported the information that way. The variations will stay on your credit report.  If it’s reported wrong, leave it because it might mess up the link. Don’t be concerned about variations.

Other information in this section might include your current and previous addresses, your date of birth, telephone numbers, driver’s license numbers, your employer and your spouse’s name.  The data in this section is often used to verify your identity or to confirm that the information you provided for an application is accurate. Small variations in this data between the three bureaus are normal as each agency may have their own recording procedures.

The personal information section of your credit report may also include a “consumer statement.” This is a statement that you asked the credit reporting agencies to add to your report. Commonly, this statement is used to explain a record on your report.

For example, “The Smith Bank account from 2004 was a shared account with my ex-husband.” This statement does not impact your credit score but may help you clarify a situation to a potential creditor or lender and improve your chances to obtain credit.

How to Find Your Credit Score

You would think that finding out what your credit score is would be easy.  It would seem logical to have your credit score appear right on your credit report, but that’s just not the way it is.

At one time, your credit score was a big secret known only to financial companies and banks.  With the FACT Act, legislators decided that it was important for individuals to know not only what their personal credit scores are but how they are calculated and how to improve them.

The main company who calculates your credit score is the Field, Isaac Company commonly known as FICO.  They invented the concept of the FICO scores so they are the ones who are known as experts in the industry.  Before we go into finding your score, let’s look at a few facts about the FICO score.

FICO scores are your credit rating:

• They range from 300-850, higher is better
• Most lenders base approval on them
• Higher scores mean lower interest rates

FICO scores are calculated based on your rating in five general categories:

• Payment history – 35%
• Amounts owed – 30%
• Length of credit history – 15%
• New credit – 10%
• Types of credit used – 10%

Field, Isaac Company is the inventor of the FICO score
They have the only website offering all 3 of your FICO scores
The median FICO score in the U.S. is 723

How To Read Your Credit Score

FICO scores range between 300 and 850.  Here’s what those scores mean:

Over 750 – you have excellent credit and will be able obtain credit easily

720 or more – you still have very good credit and will be able to obtain credit easily

660 to 720 – this is an acceptable credit.  You can still get loans, but you may pay a higher interest rate

620 to 660 – creditors are going to be uncertain about lending you money

Less than 620 – you have poor credit history and will probably not be able to obtain credit on your own.

Knowing the above information makes it obvious that if you need or want to get credit for something, the higher your score is, the better your chances are to not only get credit but get it at a handsome interest rate.  If you are in the 660 to 620 range, you may still get a loan, but the interest rate is likely to be higher.

That’s why it’s important to keep your credit good or establish good credit from the get go.

FICO Credit Score

Understanding FICO Credit Scores

Today Fair Isaac’s FICO score is widely recognized as the industry standard for lenders.

The FICO score condenses a borrower’s credit history into a single number based on past credit history. Fair, Isaac & Co. and the credit bureaus do not reveal how these scores are computed. The Federal Trade Commission has ruled this to be acceptable. The real truth is that even if we did know, we probably couldn’t calculate it ourselves anyway. Unless, of course, you happen to be a mathematical genius!

Credit scores are calculated by using scoring models and mathematical tables that assign points for different pieces of information which best predict future credit performance. Developing these models involves studying how thousands, even millions, of people have used credit.

Score-model developers find predictive factors in the data that have proven to indicate future credit performance. Models can be developed from different sources of data. Credit-bureau models are developed from information in consumer credit-bureau reports.

Credit scores analyze a borrower’s credit history considering numerous factors such as:

• Late payments
• The amount of time credit has been established
• The amount of credit used versus the amount of credit available
• Length of time at present residence
• Negative credit information such as bankruptcies, charge-offs, collections, etc.

There are really three FICO scores computed by data provided by each of the three bureaus–Experian, Trans Union and Equifax. Some lenders use one of these three scores, while other lenders may just use the middle score.

Fair Isaac has become so important in the financial industry that their word on your credit has become basically the final word. Why would banks and creditors place so much credibility into one company? The answer is simply because of their proven track record.

The FICO score has proven to be not only an accurate and amazingly consistent way of showing a person’s credit reliability, but it has also saved companies millions of dollars in credit write-offs due to bad lending decisions. A study of loans that were granted and/or denied simply due to the FICO scores shows that Fair Isaac has been right over 80 percent of the time.

Of course, that required some chance taking on the part of many creditors, but they were willing to take the risk. After all, this was a ground-breaking thing determining credit worthiness through a simple three-digit number. Many companies jumped “on the bandwagon” just to show that Fair Isaac had the right idea.

Fast forward to the twenty-first century and you will find that FICO has become the definitive when it comes to financial and credit matters. They have proven their reliability and their worthiness just through trial and error.

Unfortunately, the problem is that finding your FICO score isn’t as easy as you think. The truth is that it’s not even shown on your credit report like you would think. In fact, for years and years, your credit score was a securely kept secret number that was elusive to the average person.

Credit Report Dispute Letter

Credit Report Dispute Letter: A Sample

If you are disputing something on your credit report, you might want to try the following sample letter in your attempts:

Date
Your Name
Your Address
Your City, State, Zip Code

Complaint Department
Name of Company
Address
City, State, Zip Code

Dear Sir or Madam:

I am writing to dispute the following information in my file. The items I dispute also are encircled on the attached copy of the report I received.

This item (identify item(s) disputed by name of source, such as creditors or tax court, and identify type of item, such as credit account, judgment, etc.) is (inaccurate or incomplete) because (describe what is inaccurate or incomplete and why). I am requesting that the item be deleted (or request another specific change) to correct the information.

Enclosed are copies of (use this sentence if applicable and describe any enclosed documentation, such as payment records, court documents) supporting my position. Please investigate this (these) matter(s) and (delete or correct) the disputed item(s) as soon as possible.

Sincerely,
Your name

Enclosures: (List what you are enclosing)

Another great reason for keeping tabs on your credit report as much as possible is the possibility of identity theft.  It happens all the time and often the only way you’ll know it has happened to you is to check your credit report.

Credit Report and Credit Score

Understanding Credit Score

The very first step you need to take when trying to raise your credit score is to find out what your score is and what it means.  Legislation called the FACT Act was passed that allows all Americans to get one free copy of their credit report every year.  This report lists all of your debts you’ve had and your payment history on those debts.

It will tell you where you owe money, how much you owe, and how you pay (on time, 30 days late, etc.).  All of that information is compiled together and then analyzed.

After the analysis, a number is assigned to you as to what your credit fitness level is.  Potential creditors then look at your credit score and decide if you are going to be able to pay back the amount of money you are requesting to borrow.

That’s the short version.  Actually, there is much, much more involved in determining your credit score.  However, what should be important to you knows how to read your credit report and how to raise that score so that you are able to get the things you need.  Remember that – the things you NEED, not the things you WANT!

Understanding Credit Report…

Inquiries

The final section is the inquiries. That’s a list of everyone who asked to see your credit report. Any time anyone gets into the report, it’ll post an inquiry.  That means if you try to apply for a credit card, it’s listed as an inquiry.  Have you been shopping for a car?  Every time a dealership runs a credit report, it shows.  If you call the credit bureau and ask for a copy, it will be on there. It’s a very detailed entry record. Generally, this is great for the consumer.

Inquiries are divided into two sections. “Hard” inquiries are ones you initiate by filling out a credit application or taking your child to the orthodontist. “Soft” inquiries are from companies that want to send out promotional information to a pre-qualified group or current creditors who are monitoring your account.

You may have heard that a large number of inquiries can have a negative impact on your credit score, but you’re probably OK. The vast majority of inquiries are ignored by the FICO scoring models.  They’re not the steak in the steak dinner, so to speak.

For instance, the model has a buffer period that ignores inquiries within 30 days of getting a mortgage or a car loan. It also counts two or more “hard” inquiries in the same 14-day period as just one inquiry.  You could have 30 in two weeks and it only counts as one.

However, on the other hand, having a lot of credit inquiries on your account could also show potential creditors that you are trying to live your life on credit which means you might not have the means to pay back the debt.  This is especially true if you’ve been applying for a lot of credit cards.  And there are always many opportunities to apply for a credit card.

Of course, you know about all of the offers that come in the mail.  They usually read “You’ve Been Approved!” as an enticement for filling out the application.  This is not always true with pre-approval offers, so proceed carefully.  I usually shred them up and forget them.

Another time that you will be asked to apply for credit occurs in public places and the companies are offering products for free in exchange for a credit application.  I was at a baseball game recently and one credit card company was offering free team T-shirts and all I had to do was fill out their credit card application.  I didn’t do it, but what an enticement – especially for a fan!

Watch out, too, when you are shopping at your favorite department stores.  They also have store credit cards and may offer you a percentage off your purchase in exchange for a credit application.  In general, this is not a bad idea – which we will talk about a little later in rebuilding your credit – because store credit cards are great when helping rebuilding your credit.

The bottom line is that if you don’t need another credit card, don’t apply for one.  It’s always good to have one on hand for emergencies, but having five or six can just be a temptation to spend beyond your means.

There may also be a section on your credit report that lists creditor information.  The creditor contact section lists the name and contact information for each creditor that appears on your credit report. This can also include the contact information for creditors that have made inquiries.

Each creditor’s address is listed to the right of the creditor’s name. When available, a phone number is listed for the creditor. Creditors without listed numbers should be contacted by mail.

So that’s the first step – getting your credit report and going over it with a fine tooth comb.  But where’s that magic number – your credit score?  Let’s begin with a short section on the credit score itself and where it comes from.

Where To Purchase Credit Report

Ways to get your credit report

Essentially, your credit score is simply a snapshot of your credit use — it’s the Cliffs Notes version of seven years of your borrowing history. In many lending situations, the lender bases its decision almost solely on your credit score. Consider your credit score the overall GPA of your borrowing history.

So where can you get your credit report?
This can be done in a few ways:

You can get it from one of the three major credit reporting companies:  Equifax, Experian, and TransUnion.  The fee isn’t a huge one – usually around $15 or $20.  However, if you’re serious about growing your credit score, it’s well worth the money to be financially responsible in the end.

You can also go to www.myfico.com and get your FICO score directly from them.  They will offer you a free 30 day trial membership which will get your credit score right now and then, if you wish to continue the membership, it will update the score as it rises (or, heaven forbid lowers).

If you are applying for a mortgage, here’s a little good news for you.  You can find out your credit score for free!  The mortgage company will base their decision and interest rate on what your credit score number is, so just ask and they’ll tell you!

Three Free Credit Reports

Here’s How to Get Them

Let’s start with how to get your credit report in the first place.  There are three major credit reporting agencies that will offer you the one free credit report you get each year.  They are Experian, TransUnion, and Equifax.

You can contact each of them directly in the following ways:

Equifax

Online, you can find them at www.equifax.com.  You can also order your free credit report by mail.  However, they only offer this option for free to residents in the states of Colorado, Georgia, Maine, Maryland, Massachusetts, New Jersey, and Vermont.  All other states are required to pay a $10 fee.

If you do want to do this by mail, send your request to Equifax Information Services, LLC; Disclosure Department; P.O. Box 740241; Atlanta, GA 30374.  You can also call them at 1-800-685-1111.

TransUnion

Their web address is www.transunion.com.  As with Equifax, you can also make your request via mail by getting a copy of their mail request form online and sending it to the address provided.  You can also call them at 1-877-322-8228.

Experian

www.experian.com is where you can make a request for a credit report from this credit reporting agency.  As with TransUnion, you will need to download a form from their website if you wish to request your credit report by mail.  By phone you can call 888 397 3742.

There are also a myriad of websites who will also allow you to download your free credit report from their websites, but they ultimately will just be forwarding you to one of the above websites anyway.  However, they are worth checking out for the information that you can find on them.  Here are a few:

www.annualcreditreport.com
www.freecreditreport.com
www.creditreport.com
www.freecreditreportinstantly.com

The main thing is that you will want to get your free credit report in order to find out where you stand and how far you have to go to repair your credit.  Most of the time when you download your credit report, you will be able to view and save it instantly.  Save it to your computer’s “My Documents” file if you can.  That way you’ll be able to print it out and refer to it as much as you need.

Also, some of these sites offer low-cost memberships that will alert you if a new item comes onto your credit report.  Their services will offer many different things, but purchasing a membership is strictly voluntary and probably not necessary if you want the straight truth.