How to read and understand your
lender told you to get a copy of your credit report as part of the pre-qualifying
process for a mortgage. The purpose, he said, was to see how your credit looked
and to clear up any errors that might be in the report.
But now that you've got
it, there are an awful lot of numbers, abbreviations and terms you've never
seen before. Trade lines, charge-offs, account review inquiries -- how do you
read this thing?
First off, there are three major credit-reporting agencies
in the United States: Experian, TransUnion and Equifax.
Order a copy of your credit report and review it for any
errors. Costs vary from state to state, but in most states, it costs $9 to get
your report. TransUnion, Equifax and Experian all allow you to review your report
online. Click here
for contact information on all three agencies.
"Looking at one is a useless endeavor; you need to look at
all three," says Howard Dvorkin, president of Consolidated Credit Counseling
Services in Fort Lauderdale, Fla. "People tend to pull one and think everything
is the same on all of them. That's not normally the case."
The reports will have different
information because it's a voluntary system, and creditors subscribe to whichever
agency they want -- if any at all.
Maxine Sweet, vice president
of consumer education at Experian, stresses the importance of ordering the report
directly from the credit bureau instead of asking a buddy who works at a bank
to pull one for you. Those are written for people who work in the credit industry.
The one you get from the credit bureau is designed for consumers.
"The information is
the same, but it's much more consumer friendly," she says.
Well, not quite the same.
The report sent to a lender will list the credit bureau member numbers of your
creditors and it won't have the complete list of every company that's pulled
your credit information for promotional purposes, like pre-approved credit card
"If you compared the
two reports side by side, the consumer one will have a couple more pages of
information," says John Ulzheimer, client support specialist for credit
bureau products at Fair, Isaac and Co. Fair, Isaac is the creator of the FICO
score, the widely used credit scoring model that is used to determine a person's
Anatomy of a credit report
A credit report is basically divided into four sections: identifying information,
credit history, public records, and inquiries.
is just that -- information to identify you. Look at it closely to make sure
it's accurate. It's not unusual, Sweet says, for there to be two or three spellings
of your name or more than one Social Security number. That's usually because
someone reported the information that way. The variations will stay on your
credit report; "If it's reported wrong, we leave it because it might mess
up the link. Don't be concerned about variations."
Other information might
include your current and previous addresses, your date of birth, telephone numbers,
driver's license numbers, your employer and your spouse's name.
The next section is your
credit history. Sometimes, the individual accounts are called trade lines.
Each account will
include the name of the creditor and the account number, which may be scrambled
for security purposes. You may have more than one account from a creditor. Many
creditors have more than one kind of account, or if you move, they transfer
your account to a new location and assign a new number. The entry will also
- When you opened the account;
- The kind of credit (installment,
such as a mortgage or car loan, or revolving, such as a department store credit
- Whether the account is
in your name alone or with another person;
- Total amount of the loan,
high credit limit or highest balance on the card;
- How much you still owe;
- Fixed monthly payments
or minimum monthly amount;
- Status of the account
(open, inactive, closed, paid, etc.);
- How well you've paid
On Experian's report, your
payment history is written in plain English -- never pays late, typically pays
30 days late, etc. Other comments might include internal collection and charged
off or default.
"Charged off means
the creditor has given up, thrown in the towel," Ulzheimer says. "He's
made efforts to collect and written it off."
Other reports use payment
codes ranging from 1 to 9; an R1 or I1 on a report is an indication of a good
payment history on a revolving or installment account.
Better off blank
The next section is the part you want to be absolutely blank. The public records
section "is never a good story," Sweet says. "If you have a public
record on there, you've had a problem."
It doesn't list arrests
and criminal activities; just financial-related data, such as bankruptcies,
judgments and tax liens. Those are the monsters that will trash your credit
faster than anything else.
The final section is the
inquiries. That's a list of everyone who asked to see your credit report.
"Any time anyone gets
into the report, it'll post an inquiry," Ulzheimer says. "If you call
the credit bureau and ask for a copy, it will be on there. It's a very detailed
entry record. It's great for the consumer."
Inquiries are divided into
two sections. "Hard" inquiries are ones you initiate by filling out
a credit application or taking your child to the orthodontist. "Soft"
inquiries are from companies that want to send out promotional information to
a pre-qualified group or current creditors who are monitoring your account.
You may have heard that
a large number of inquiries can have a negative impact on your credit score,
but you're probably OK.
"The vast majority
of inquiries are ignored by the FICO scoring models," Ulzheimer says. "They're
not the steak in the steak dinner."
For instance, the model
has a buffer period that ignores inquiries within 30 days of getting a mortgage
or a car loan. It also counts two or more "hard" inquiries in the
same 14-day period as just one inquiry.
"You could have 30
in two weeks and it only counts as one," Ulzheimer says.
If you find a mistake on
your credit report -- an account that isn't yours or a disputed amount -- you'll
need to fill out the form that comes with the report, or follow the instructions
on the explanatory sheet.
The process takes time because
the creditors have 30 days to respond to a charge of a discrepancy. As long
as a charge is in dispute, that dispute will show up on your report. Long-time
lenders say it's common for reports to have errors. Some estimate that as many
as 80 percent of all credit reports have some kind of misinformation.
-- Posted: March 16, 2003