Credit reports, part 2 -- cracking the code
Michael Abramowitz

Once you get your credit report what do you need to look for?

Experts recommend that you obtain a copy of your credit report at least once a year. But once you get your mitts on your report, what do you need to look for? And what do all the remarks on your report mean to you and your creditors?

The truth is that reports from the three credit reporting bureaus -- Equifax, Experian and TransUnion -- read differently, warns Deborah McNaughton, the Tustin, Calif.-based author of "The Insider's Guide to Managing Your Credit."

Spell check

Regardless of the provider, you should always check:

In addition to the identification and account information, your credit report will show some information that is public:

A final section shows inquiries into your account, so you know who is asking for your report.

"When consumers look at their credit report, they're often surprised by what they see, but it shouldn't necessarily disturb or upset them," says Anissa Yates, manager of corporate communications for Experian in Orange, Calif. "People don't realize how many credit lines they have open."

You should also ensure that any accounts that are shown as closed were closed by the correct entity. An account closed by the consumer looks far better to creditors than an account closed by a bank or lender, she adds. Lenders tend to interpret accounts closed by creditors as accounts that weren't paid off and closed due to a bad debt.

Should you see any erroneous information, contest it immediately using the form enclosed in the report. The credit reporting agency has 30 days to contact the creditor and resolve the dispute. Keep in mind that the information on credit reports is usually 45 days old.

You can also add statements to your report to explain any information that appears on the report, but creditors are not required to consider your written defense.

Making X's out of the O's

Both Experian and TransUnion list information that's potentially harmful to your financial health at the top of their reports. Experian designates the bad news by labeling them "potentially negative items" and setting them off with dashes. Meanwhile, TransUnion points out harmful information by using both a paragraph to state what is the problem and by placing brackets around the negative item.

The good news about the bad news is that both of these reports spell out in plain English what could be viewed as a black mark by a future creditor.

"Believe me, these reports are much more readable than they used to be," states Norm Magnuson, vice president of public affairs for Associated Credit Bureaus, a trade association for credit reporting agencies in Washington.

Nevertheless, McNaughton says that Equifax's credit file is by far the most difficult to understand because it uses a series of letters and numbers to denote an account and its status.

"Equifax is a [different kind of] monster," McNaughton warns.

For example, your Sears account may have an "R1" by it, which means a revolving account that is paid in full. Conversely, a bad car loan debt may have an "I8," which translates as an installment loan on a vehicle that's been repossessed.

Whether you're looking at a report from Equifax, Experian or TransUnion, read the guide that accompanies the report. It will help you understand the information that follows.

Remember that the information in your report also shows positive information, such as accounts you've paid on time. Even if you have a few black marks on your report, not all creditors will view it as negative. Your most recent payment history weighs most heavily in their eyes.

Should you forget to pay a bill every once in awhile, it may show up on the report as a charge that's 30 days late. But as long as these are aberrations instead of patterns, you'll be OK in most creditors' minds, Magnuson says.

However, Dave Mooney, spokesman for Equifax in Atlanta, says it is ultimately up to the creditor to determine what is good and what is bad. "Some have grace periods of 15 days, and others are real sticklers. You need to go to the creditor or the grantor, and ask them what they consider to be late."

McNaughton says the easiest way to maintain a healthy credit report is to pay your bills on time each month, sending at the very least the minimum balance due.

"That minimum is what's on the statement, not what you create," she advises. "If you can only pay $10 and the minimum is $25, that charge will go into next month as a rolling late payment."

And you'll wind-up with that dreaded black mark on your report.

-- Posted: Nov. 2, 1999