Understanding Your Credit Report

Colonel's Arrest Report (Redacted)
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Any savvy consumer knows that it’s important to get a free copy of his credit report each year in order to make sure that the credit information is up to date and that there have been no problems related to identity theft. Even those people who fail to follow this basic common-sense rule about monitoring credit will come up against times that require them to get a copy of their credit report, such as when they apply for a home mortgage. These papers that reveal your financial status are important – and they can also be really confusing for the average person to understand.

There are three different companies from which you might get your credit report. (The smart consumer will order a copy from each company to make sure that all of the information is accurate across the board.) Each of these companies will have slightly different methods of displaying the information on your credit report. However, all three of them have the same basic credit report information. If you can understand the basics, you’ll be able to read any credit report.

The easiest part of the credit report to understand is the part which reveals your personal information. This is where you will see your name along with any other names that you have used in the past. You may see your maiden name on the document or you may see different versions of your name (such as your name with and without your middle initial). In some cases, a credit card company has entered a misspelled version of your name and that will also show up on the credit report. Other identifying information that you will see in this part of the credit report is your current and previous address, contact information, social security number and date of birth. You will want to check these over to make sure that they are correct. In most cases, errors won’t be a problem but you’ll definitely want to know if someone with a different date of birth and the same name has gotten mistaken for you on the credit report.

After the identifying information is where things get more confusing. The main portion of the credit report that you’re going to want to review is the information with your credit history. This will show each credit card or other loan that you have had in the past and which you have currently. It will show the account number for the card (or at least a portion of the account number), the type of credit that it was (revolving, department store, etc.) and the status of the account (open, inactive, paid, closed, etc.) You’ll need to go through each account, figure out which card or bank it’s with and make sure that the type and status are correct.

This portion of the credit report will also reveal the information that can impact your credit score which includes the total amount of the loan, the amount still owed on the loan, late payment information, and the amount that must be paid monthly on the loan. This information can be useful to you as a borrower because it will help you get your financial records straight. It is also useful to lenders who want to see what type of borrower you are. As a result, it is important that you go through this section with a fine-tooth comb to clear up any misunderstandings that exist.

There are several things that you’ll want to look out for on your credit report because they serve as red flags to lenders and can prevent you from getting big loans such as a home mortgage loan. Within the credit history portion of the credit report, you want to look for the words “collections” and “charge-off”. These are signs that the lender has given up on the idea that you’re going to pay back the loan and is taking other action to receive the payment. This is bad. There is also another section of the credit report entirely which is called the “public records” section of the report. If you have ever filed for bankruptcy or gotten a tax lien against you, this information is going to appear here. You don’t want that. If there’s something there that is incorrect, you need to make sure to take care of it immediately.

The final part of the credit report that might confuse you as a borrower is the section which lists credit card accounts and loans that you don’t actually have. This section is the “inquiry” section of the credit report. You see, if you apply for too many loans at one time, it makes you appear desperate and lenders don’t want to give money to desperate people. This part of the credit report will reveal your history of credit card inquiries to those lenders.

The credit report is a little bit confusing for someone who has never read through one carefully before. That’s primarily because there are a whole lot of numbers there that you’re going to have to review carefully in order to make sure that the report is correct. However, you can easily understand the credit report if you break it down into sections and read through it line by line. The more you read, the more familiar you’ll get with the language and layout of the report. Before you know it, you’ll be able to explain to someone else how to read their credit report.