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Reading and Understanding Credit ReportsWhen you receive your credit report, you might find that it is a little difficult to understand. All of the numbers, terms, and information may seem like nonsense to someone who has not been trained in how to read credit bureau reports. Here is some information you can use to help you with understanding credit reports and what they mean for your finances.Which Credit Report Do You Have?The first step in understanding your credit score is knowing which credit report you are looking at. If you are in the United States, you will have three main credit reporting agencies to choose from: Equifax, Experian, and TransUnion. You can order each credit report individually, but you may find that the different presentations are confusing.Most financial advisors will recommend getting a three in one credit report. This report will list the information from all three agencies in a simple to read format that allows you to compare information side by side. You may find some differences between the three reports. This happens because your creditors are only required to report your information once, and as such they may not choose to report to all three of the bureaus. Some creditors are not required to report at all. This is why having access to all three reports is important if you want to get a good picture of how healthy your credit score is. When you get your credit report, you will find that it is divided into four basic sections. The first section contains your identifying information, followed by your credit history. After this you will find public records against your name and any inquiries that have been made into your credit score. Important Sections on Your Credit ReportThe following are the most important sections on your credit report. Make sure to read and understand these sections.Identifying InformationThe identifying information tells who you are. While this has little to do with understanding credit report score numbers, you should look over this information to make sure that it is accurate. You may find that you have more than one Social Security number listed, or several spellings of your name. If one of your creditors reported your information incorrectly, it will be added to your credit rating. These are usually not a cause for concern. You will also find your address, phone number, driver’s license number, employment information, and your spouse’s name in this section, when applicable.Credit HistoryThe credit history section of your credit report is where you need to spend some time if you are trying to work on knowing and understanding your credit report. This section will outline all of the credit lines you have or have had in the past. These accounts may be called “trade lines.” Regardless of what they are called, any type of credit you have owned will be listed, even if you have closed the account.After the listing of your credit accounts, you will find some important information. First, you will see the date you opened the account. You will also see the type of credit it is, such as your mortgage or a revolving credit card. You will also be shown the names on the account, the total balance, available credit, and monthly payment amount. Your account status will also be listed. Finally, and most importantly, you will see your payment history. The payment history is sometimes difficult to understand, because each credit bureau reports this in a slightly different way. Some of the repots use numeric codes with the low number being a good repayment history, and a high number being a poor repayment history. Experian uses simple statements to show your payment history. Public RecordsIf you have an extremely low credit rating, check the public records section. Chances are pretty good there is something listed here. This is the place where bankruptcies, liens, and judgments against your name will be listed. These have a huge impact on your credit score.InquiriesThe inquiries section shows the people or businesses that have made inquiries into your credit score. If you apply for a loan or credit card, you will see that the lender is listed in this section. You will notice that there are two types of inquiries in this section. Understanding credit rating score information requires understanding the two types of inquiries.Hard inquiries are the ones that come from potential creditors. When you apply for a loan, a hard inquiry into your credit rating is made. This is important in understanding credit scores because hard inquiries have a slight negative impact on your credit rating. Soft inquiries are the inquiries made by those who send you credit card offers. These do not impact your credit rating. As you can see, understanding credit ratings is not complicated. It simply requires some basic facts about the information presented on your credit report. Now that you know what you will be looking at, it is time to get a copy of your credit report and start checking it over to make sure that your finances are in order! |
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