What is a credit report and how do I read it?

blog illustration image

Dear reader,

We all know that credit reports are important. But not many people know what reports look like or how to read the information on them. Understanding a credit report is easier than it seems if you know what to expect when you review your report.

Your credit reports are generated by the credit bureaus or consumer reporting agencies, each containing detailed data about your credit behavior. This data is used to calculate your credit score, and lenders use both, your report and score to determine your creditworthiness when they are considering lending you money.

There are multiple credit bureaus in the U.S. that compile, keep, and generate credit reports. The most widely known are Equifax, Experian, and TransUnion. Each credit bureau organizes its information differently, but they all generate reports that are consumer friendly and contain the same vital information. There may be some discrepancies between them because not all creditors report to all credit bureaus, but most major credit cards and loans should be included in all three. You can get free credit reports from the three main credit bureaus through annualcreditreport.com once every 12 months, and it’s highly recommend that you review your reports periodically. You can also get them directly from the credit bureaus for a small fee or free if you meet certain criteria.

Once you are ready to review your credit report, the most important thing is to make sure all the information is correct. So, let’s walk through the different sections on your report so you know what to expect in each of them. The first section is your personal information and your public records. You’ll see your name, birthdate, a partially masked social security number, home addresses, phone numbers and, sometimes, current and past employers. Keep an eye out for important information that is not yours (such as a different social security number) because it could indicate a mistake or identity theft. Either way, this information should be corrected. It’s common to see variations in the spelling of your name and this is generally fine and does not require you to take action. Your public record information, if any, will show details about any bankruptcies, tax liens, judgments, etc. that you may have had in the past. However, it doesn’t include criminal records.

Next, you will see details about your credit card accounts and your installment loans (auto, mortgages, second mortgages, student loans, etc.). This is arguably one of the most important sections of your report because it reflects your current and past behavior managing your credit. Each one of your accounts will show details about the name of the creditor, account number, the status of the account (opened or closed), the type of account (credit card or loan), whether you are the account owner or an authorized user, the date the account was opened, and the date of last activity. It will also show your credit limit for the credit cards and the original loan amount for your installment loans, how much credit you are using, what is your monthly minimum payment, how much you pay on a monthly basis, and most importantly, if you’ve made your payments on time for the last couple of years. If you find an account that you don’t recognize or any inaccurate information, it is your responsibility to correct them.

You can easily dispute inaccurate information with the credit bureaus to correct it.

If you have accounts in collections (whether credit cards or utilities), you will also see detailed information about them as they stay on your report for up to seven years.

Last but not least, there is a section that lists all the credit inquiries. They are categorized as high-impact and low-impact inquires. High-impact inquiries stay on your report for 24 months and are generated when you solicit any new credit. Too many inquiries in a short period of time can lower your score, so keep it in mind if you are getting new credit often. On the other hand, low impact inquiries don’t affect your score and are created when creditors check your report to mail you promotional offers or when others (like a potential employer) asks to see your report.

Although credit reports are user friendly, they could still be tricky to understand, especially if you are not familiarized with them. You have plenty of resources online, including a sample Experian credit report, but sometimes this is not enough. You can reach out to a certified-credit counselor from an NFCC-member agency and they can help you not only read your report, but teach you more about your credit and how to manage it successfully. It’s never too late to start learning and improving your credit.