A credit report is a comprehensive document that details your past financial transactions and paints a picture of your creditworthiness. In particular, your credit report is extremely important to lenders as it is used to devise a credit score which indicates how reliable you are when it comes to borrowing.
It is extremely important to be able to fully understand your credit report in order to keep track of your financial history, spot any errors and if necessary, use it to see how you can improve your credit score. With this in mind, this guide will present useful tips on how to comprehend your report, check it and correct any mistakes.
What Is A Credit Report?
According to USA.gov “credit reports list your bill payment history, loans, current debt, and other financial information.” When a consumer signs up for a credit card or takes out a loan, creditors keep track of their payments, credit limit or loan balance, and then report this information onto credit reporting companies. The credit reporters then summarizes a person’s full track record with borrowing and repaying debt via credit or loans into one report, providing a detailed record of their borrowing history.
Credit reports also include personal information such as your postal address and employment details. It will also state whether you have ever filed for bankruptcy, been sued or arrested.
Why Is A Credit Report Important?
A credit report is extremely important since it helps lenders decide whether they should give you credit or approve you for a loan as it is used to evaluate the likelihood of whether you would be able to pay them back on time. It can also determine the conditions of your borrowing. For instance, if you get a bad credit loan, it would typically have a shorter loan term and higher interest rates than if you have a good credit score whereby you would receive much more competitive loan terms. So being able to track your credit report and if needed, see how you can improve it, can be a very valuable resource.
It is also possible that other key institutions can look at your credit report to determine your reliability. This includes mortgage brokers, insurers, employers and even landlords.
Why Should You Regularly Check Your Credit Report?
You should check your credit report regularly to make sure that all the details are accurate. If there are any financial mistakes or any fraudulent accounts created in your name then this could have a significant negative effect on your credit score, so it is essential to keep an eye on your report to prevent this from happening.
How To Check Your Credit Report
You are entitled to a free annual credit report from credit reporting agencies such as Exerpian, Equifax or TransUnion. This can help you keep in control of your finances as you can monitor your borrowing history and understand what lenders see when you apply for a credit card or loan.
How To Understand Your Credit Report
Whilst credit reports differ slightly depending on which credit reporting agency you go through, they all tend to share the main key categories. This includes:
Personal details – This will include key information such as your name, date of birth, postal address, contact number and social security number. It is important to make sure that all your details are accurate to prevent yourself from being subject to identity theft. If this does occur, you should get in touch with the credit bureau immediately and look into putting a security freeze on your report.
Credit accounts – This will mention any open and closed accounts you may have such as credit cards, student loans or any other debts, as well as if you have ever paid late or missed a repayment. Current account balances, credit limits and payment statuses will all be mentioned in this section. Since this part plays a significant role in determining your credit score, it is recommended to go through it thoroughly to make sure you recognize all the accounts listed and their payment status, especially since negative information can stay on your report for 7 years.
Credit enquiries – This is where hard and soft inquiries will be shown. Lots of hard enquiries, which occur when you apply for a loan and a lender looks at your credit report, can stay on your report for 2 years and negatively impact the way a lender views you since lots of applications for new credit at once can make you seem like a riskier borrower. Soft inquiries, which are less significant and occur for instance when you request a copy of your own credit report, do not tarnish your creditworthiness.
Public records – This is where you would see bankruptcy or foreclosures reported. Negative public records tend to be the most significant factor that can bring down your credit score so you should check carefully that the information is correct, especially since it can stay on your report for around 7 to 10 years. So if you have any negative items that have not been removed off your credit report over this timeframe, then you should definitely contact the credit bureau or company involved to resolve this for you.
It goes without saying that if any information found on your credit report is inaccurate, you should file a dispute immediately with the credit bureau that created the report, with an example letter template shown by the Consumer Financial Protection Bureau here. You should also get in touch with the lender or debt collector who provided the incorrect information to the credit bureau.
You should then get an updated copy of your credit report to make sure the error has been removed and your history has been corrected. Resolving these issues can significantly improve your credit score and in turn ensure you have more favorable conditions if you look to borrow money via credit or loans in the future.
How To Improve Your Credit Score Based On Your Credit Report
Now that you understand how to check your credit report, you can use it as an opportunity to improve your credit score. You can look out for late payments or high balances and try to pay them down as quickly as possible. Likewise, removing errors from your credit report, such as mistaken collections or unpaid debts that you have paid off, is bound to help increase your creditworthiness and in turn your rating.
Justine is a full-time writer with lots of expertise and a wealth of experience in the financial world. In particular, she specializes in household income and consumer finance across the United States. Follow her articles for useful advice and top tips, guides on how to save money and lots more.