OK, so now you have your credit reports and wow — 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, there are three major credit-reporting agencies in the United States: Experian, TransUnion and Equifax. Everyone is entitled to a free copy of their three credit reports — one from each of the credit reporting agencies — every 12 months under federal law.
Get all of them
“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 supply credit information to whichever agency they want — if any at all.
Maxine Sweet, vice president of consumer affairs at Experian, recommends 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 the credit industry. The one you get from the credit bureau is “much more consumer-friendly,” says Sweet.
The report is easier to read because it won’t list the creditor’s member numbers and other information relevant to only the lender. A lender’s report also will lack a complete list of every company that’s pulled your credit information for promotional purposes, like preapproved credit card offers.
“If you compared the two reports side by side, the consumer one will have a couple more pages of information,” says John Ulzheimer, credit expert at CreditSesame.com.
Understanding the setup
A free credit report is divided into four sections: identifying information, credit history, public records and inquiries.
information is just that — information to identify you. Look at it closely to make sure it’s accurate. It’s not unusual for there to be two or three spellings of your name or more than one Social Security number, Sweet says. 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 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 include:
- The kind of credit (installment, such as a mortgage or car loan, or revolving, such as a department store credit card).
- 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 the account.
The reports will also show your recent payment history and whether you paid as agreed each month. TransUnion and Experian credit reports also include the amount of each payment. Other comments under an account might include account closed by consumer, internal collection, 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.”
The next section is public records, which “is never a good story,” Sweet says. “If you have a public record on there, you’ve had a problem.”
The report lists only financial-related data such as bankruptcies, judgments and tax liens, all of which can trash your credit. Arrests, lawsuits and other information aren’t included.
The final section is 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.”
There are two types of inquiries, hard ones and soft ones. Hard inquiries are initiated by you when you fill out a credit application. Soft inquiries come from companies that want to prescreen you for credit offers, potential employers or current creditors monitoring your account. The soft inquiries only show on reports given to consumers, says Sweet.
There’s a change you may find a mistake in your credit report. One in five consumers had an error on their credit report from the three major credit bureaus, according to a 2013 government study. One in 20 had an error so bad that it cost them more money on loans or insurance.
If you find a mistake — such as an account that isn’t yours or an erroneous amount — you’ll need to dispute it with the credit bureau. The reports list a Web address for the credit bureaus’ online dispute form.
The credit bureaus will investigate your dispute by contacting the creditors, which have 30-45 days to respond to your dispute. The disputed item will show up as disputed on your credit report until it’s resolved. If you feel your dispute is not handled well, you can file an online complaint with the Consumer Financial Protection Bureau, which will help facilitate the dispute process.