Adulting 101: How to Interpret Your Credit Report
Aside from monitoring your credit score every month, you should make sure to check your credit report at least twice a year for errors or signs of fraud. Fair warning though, a credit report is more difficult to understand than your credit score, which is just a simple number.
If you don’t know how to interpret your credit report, you won’t understand the red flags to look for. In this article, we’ll discuss how to interpret credit scores and reports so that you can detect fraud and understand everything that makes up your credit report.
Interpreting Your Credit Report
In order to understand your credit report, it’s best to understand what a credit report is and why it matters. From there, we’ll discuss the different components of a credit report and how you can find yours and read it.
What is a Credit Report?
A credit report is a comprehensive statement of your credit history. It’s used by potential lenders to determine the level of risk you are. The lower risk lenders label you, the more likely you are to get a line of credit. A credit report tells lenders:
- When you opened credit accounts or took out loans
- Current balances on open accounts
- Your payment history
- Credit limits and total loan amounts
- Bankruptcies or tax liens
- Identifying information, such as name, address, and social security number.
Why Does a Credit Report Matter?
Your credit report works hand in hand with your credit score in determining the status of your debt. A credit score is a quick measure of how you handle debt, but a single number doesn’t tell a lender much about your spending habits or credit history. In contrast, the report digs deeper to help them determine why your score is what it is.
There are consequences to having low credit scores and bad credit reports. Here’s why a credit report matters.
- It determines whether or not a lender will be willing to work with you and give you a loan or a line of credit.
- Employers may use credit reports as part of the hiring process to determine whether or not you’re dependable.
- Mobile phone providers run credit checks.
- Landlords and management companies use credit checks as one of the determining factors when deciding who to rent to. You could get charged higher rates for having a low credit score.
Getting Your Credit Report
Each major credit reporting agency allows you to get one free copy of your credit report every year. You can sign up with SmartCredit and conveniently request all three credit reports and see them side by side in one place, rather than from each bureau separately.
Each agency will keep different details on file, so your report may differ from one to the next. Because of this, it’s advised to check all three and compare them.
Reading Your Credit Report
Once you have your credit report in hand, here are the things you can expect to see, and what you should take a closer look at.
The identifying information sections include any personal information that’s used to identify you, including:
- Date of birth
- Social Security Number
- Phone number
What You Should Look At: This may seem like the most basic section, but credit reporting agencies can make mistakes here, especially if someone else has the same name as you. It’s always important to check this information, including the Social Security Number to make sure everything they have on you is correct.
The addresses listed should be all of the places you’ve lived. If you find an address where you’ve never lived, it’s best to contact the credit reporting agency to find out what went wrong.
This is crucial because you never know if you’re being flagged for another John or Jane Doe’s bad credit, or if you’re the victim of fraud.
The credit history section is the meat of the report. This section includes:
- All credit accounts, including open and paid, such as credit cards, mortgages, and loans
- Accounts shared with others
- Total loan amounts
- Remaining balances
- Late payments
- Accounts in collections
What You Should Look At: This section should be read and reread to make sure that everything listed is correct.
Any accounts that are in collections should be taken care of immediately. You may find discrepancies that are affecting your credit score. Look for accounts that don’t seem familiar to you and check for any payments being marked as late when they weren’t.
If you’ve closed any accounts, make sure that those accounts are reflected as closed. Conversely, you should also check that no lines of credit have been opened up in your name without your consent. This is a red flag and means that you could be a victim of identity theft.
If you’re lucky, the public records portion of your credit report should be blank. This is the area where financial activities like bankruptcy, tax liens, and judgments will be found.
Records like these can stay on your credit report for as many as seven to ten years.
What You Should Look At: You likely won’t find an error here because these reports are taken from the public record, but it’s worth looking at just in case they pulled someone else’s records by mistake.
This section of the credit report lists every business that’s requested your credit report. You’ll see the two different types of inquiries: soft and hard.
Soft inquiries are from organizations that want to send you promotional materials, like advertisements about new credit cards, or creditors checking your account. Hard inquiries come from companies when you apply for a credit card, loan, or mortgage.
What You Should Look At: Hard inquiries can make your credit score drop a few points for a short while. If you haven’t applied for any credit cards or loans and see a hard inquiry on your report, make sure to get this cleared from your history ASAP, especially if you want to have a pristine credit report for when you do apply.
When you check your credit report, you’ll see open accounts. An open account is a line of credit that’s been opened and never officially closed.
If you have a department store credit card that’s been paid off, but you’ve forgotten about it, you’ll find it in this section. Even if you haven’t used a particular credit card for a long time and don’t plan to use it again, it will still show up as an open account on your report until the account is closed.
The “U” on a Credit Report
The letter “U” on your credit report stands for “unclassified.” This means that the account hasn’t been updated at the time the report was pulled.
This can appear next to any account on your credit report and indicates that there could be a potential problem with the account, such as it is past due or in collections.
Don’t panic, though. You may see a “U” if the account is new, and no payments have been made on it yet. In this case, it shouldn’t have a negative impact on your credit score, and shouldn’t be cause for concern.
Who Sees Your Credit Report?
There are several types of organizations that are authorized to request your credit report, including banks, creditors, lenders, insurance companies, landlords, collections agencies, employers, and the government.
Take note that anyone who lacks this kind of authority cannot legally pull your personal information to access your report.
Disputing Inaccuracies in Your Credit Report
If you find any mistakes in your credit report, you’ll need to contact the agency showing the mistake. This is why it’s vitally important to compare reports from the three major reporting agencies.
To dispute credit report inaccuracies, write a letter that lists the mistakes and present documentation to support your claim.
For example, if you’ve closed a credit card, but it is showing up as open on your report, you’ll need to gather evidence to prove that the account has been closed. This should all be sent by certified mail. You can expect the agency to respond within 30 days.
You may want to contact the agency ahead of time to find how to expedite this process. They may be able to help you on the phone or through their website.
SmartCredit offers convenience with the action button that can submit dispute communications with one quick click. You may use this feature for customer disputes, claims, or anything that needs to be communicated directly to the source (i.e. creditor or bank reporting the situation) rather than the credit bureau.
Rather than writing to the credit bureaus, the action button helps the customer save time, as they get to raise concerns to the source of the dispute directly*.
Part of being a responsible adult is monitoring your lines of credit and ensuring that you haven’t become the victim of identity theft. Now that you know the important things to look for, you can take more proactive steps to stay ahead.
To learn more about your credit scores and reports, visit the SmartCredit website today!
*Results and timing of results may vary depending upon your circumstances.