How to read and understand your credit report

The 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.

Plus thanks to a new federal law you'll now be entitled to one free credit report from each of these credit reporting agencies per year. Consumers in western states became eligible to request their free annual credit report Dec. 1, but if you live on the East coast you'll have to wait until Sept. 1, 2005. To find out when you become eligible to receive a free credit report, check out Bankrate's map.

The reports will not automatically be sent out. Each consumer must request their reports one of these three ways. Go to www.annualcreditreport.com, which is the only authorized source for consumers to access their annual credit report online for free. Or, call 877-322-8228. Lastly, you may complete the form on the back of the Annual Credit Report Request brochure, and mail it to: Annual Credit Report Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. One more caveat: you'll be able to order all three credit reports at one time, or at different times throughout the year. It's your choice. But be sure to order from the centralized agency. If you go directly to the credit reporting agencies, you will be charged unless you fit another criteria for a free report.

The new ruling doesn't replace the other ways to receive a free credit report. You're still entitled to a free credit report if: you've been denied a loan, insurance or job based on your credit report; you're applying for unemployment or receive public assistance; and you currently reside in a state that already offers an annual free credit report from each credit reporting agency (Colorado, Maine, Massachusetts, Maryland, New Jersey and Vermont. Georgia residents are entitled to two free annual credit reports from each credit reporting agency.)

"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.