How to Read Your Credit Report

We’ve said it many times before but it’s always worth repeating: Your credit report is one of the most important things you have. A clean, strong report can make your life easier; a bad one could stop you from getting a mortgage and opening new credit accounts. But how can you read your credit report and make sense of everything contained within?

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How to See Your Credit Report

Your credit report is a detailed analysis of your active credit accounts and includes information that goes back many years. This report is curated by three major credit bureaus (TransUnion, Experian, Equifax) and used to build your credit score, which in turn is used by creditors to determine your creditworthiness.

For information to appear on your credit report, it needs to be reported to the credit bureaus by your creditors. If they don’t report this information, your score will neither increase nor reduce as a result of the activity on that account.

By law, all major credit bureaus have to provide you with 1 free credit report every year. You can request these reports directly from the bureaus or you can go through a third-party provider. They will typically try to sell you a premium service, one that includes fraud protection features as well as unlimited credit checks, but you don’t need to pay any money if you only want the most basic of checks.

Every time you check your credit report you will initiate a soft credit check. The same check is initiated by credit card companies and other creditors when they run an initial inquiry. This does not appear on your credit report, nor will it reduce your credit score in any way, so you can check as many times as you want without issue.

How to Read Your Credit Report

Your credit report will look pretty much the same across all credit bureaus, although there may be some slight tradeline variations and layout differences. Generally speaking, your credit report will contain the following sections:

Personal Information

This section of your credit report contains key personal identifying information, including:

  • Full Name
  • Current Address
  • Previous Addresses
  • Date of Birth
  • Social Security Information

It’s important to make sure all of this information is 100% correct. If your credit report states that you have lived for several years in a state you’ve never set foot in, you need to dispute it and have that information removed. It could be a mistake; it could be something more nefarious. In any case, it may harm your credit score if this information is not accurate.

Credit History

Your credit history contains all information pertaining to your current and previous accounts. All of the following information will be listed here:

  • Current Accounts (owned fully and partially by you)
  • Total Loans and Credit
  • Remaining Balances
  • Late Payments
  • Accounts in Collections

There are a few things to check here. Firstly, as with your personal information, you need to make sure that everything listed here is correct. If you have been the victim of fraud then you may see accounts that you didn’t open, in which case they will likely be marked with late payments and may even be in collections.

After all, very few fraudsters will do you the honor of repaying the loans that they take out in your name. 

Secondly, you need to confirm that your payments have been marked correctly. Did you make a payment on time, only for it to show as late? Late payments can remain on your credit report for 7 years and do some damage in that time, so you need to dispute them sooner rather than later and clear them from your account.

If an account is brand-new, you may see a “U”. This means “unclassified” and typically means that the account was not updated at the time the credit report was pulled.

Records

If you have a tax lien against you or have filed for bankruptcy in the last 7 years, this will be in the public record and will appear on your credit report. The credit bureaus take this information directly from the public record, which means it’s highly unlikely they will make a mistake. However, such mistakes can still happen and it’s worth double checking to make sure.

Inquiries

This is where you will see a list of the companies that have checked your credit report, including those that have initiated a hard inquiry. A hard inquiry can reduce your score by several points and is made when you apply for a credit card, loan or other credit application, often as one of the final steps.

If you have been the victim of fraud, you may see multiple hard inquiries that you didn’t initiate. 

All hard inquiries will disappear from your credit report after two years, but they will stop impacting your credit score after just a year.

Making Disputes

If there is anything on your credit report that doesn’t belong, it’s time to file a dispute and get it removed. Gather all information pertaining to the mistakes and then send a detailed letter by registered mail to the credit bureau responsible. They will then have 30 days to respond and either remove the inaccurate information or argue their point as to why it should remain.

Your Credit Score

Your credit score may not appear on your credit report as they are completely different entities. You may need to use a different service to get this information, but it’s not essential for managing your finances and keeping a close eye on your financial situation.

It also has no bearing on your finances or your net worth. You can be incredibly rich and have a nonexistent credit score, just as you can be very poor and have a good credit score. This score is simply a measurement of how good you are at managing your debts and playing the game of credit.

Can Someone Initiate an Inquiry Without My Knowledge?

A creditor needs your permission to initiate a hard inquiry. If such an inquiry appears on your credit report and you didn’t initiate it, you may have been the victim of fraud and should seek help immediately. However, the same doesn’t apply to soft inquiries. These will not impact your credit score and they can be initiated without your permission.

The vast majority of soft credit checks are done without your knowledge. These can happen every time you check your own credit report, but they can also be initiated by employers and credit card companies judging whether or not they should send you a promotional offer.