How to Interpret Your Credit Reports
Accessing your credit report is one of the most important things you can do for your financial health. It allows you to see what your potential lenders see. Even potential employers and insurance agents view this information. You need to know what is on the report and what it means. Consider your credit report like a report card from school. It provides other people with information about how you are performing when using credit. It provides a detailed examination of what you are doing well and what you are not, and gives you tips on how to improve, too.
What to Look for
When you get a copy of your credit report, take the time to read it. What you will find is that most credit bureaus provide a great deal of information on this report and they tell you what you need to do to boost your credit score. Look at the following information, as it is perhaps the most important information to look at because it is what the lenders are looking for.
Usually, at the top of the report is your name, address and other personally identifying information. Be sure all addresses are accurate. Past addresses are likely to be listed and this is not a problem. However, you do want to make sure all information is accurate and up to date.
Your Current Creditors
This section will list each of the creditors you currently have. It will list how much you owe them, your high balance and your credit limit. It also will provide up to two years worth of payment history. In short, this will show how well you make your payments. This is perhaps one of the most important sections because it tells potential creditors how well you are managing your current credit amount.
• Look for any late or missing payment information. Is this information up to date and correct?
• Realize that the balance information may be as much as 30 to 60 days off, which means that the balance from last month is likely listed on the report. It can take that long for information to update.
• If you notice a creditor that is not yours, or one that has a balance that should not, this is a place to investigate. It is critical to ensure that you know whom you owe money to. If there is an account that you did not create, contact the lender directly to report the account as not being your own.
This section is critical to go through. While the balances may be a few months off, realize that this information should be up to date overall. It is what lenders use to see how much debt you have and how well you pay your bills.
Your Previous Accounts
Avoid closing old accounts. They establish how long you have used credit and give your credit score a boost. Keep in mind, though, that previous account information should be up to date and accurate. It should include all information about the account, just as your current account information does. Report any accounts that are not your own.
Judgments and Public Records
This section will list numerous types of negative information, if you have any. If this information is here, verify that it is accurate and report it to the lender if it is not. You can also dispute this information with your credit bureau. Unless it is inaccurate, you cannot remove this information from your credit file until it expires (which for most collection and judgment action is seven years, and up to ten years for Chapter 7 bankruptcy.)
• Collection accounts you have or have had in the last seven years
• Judgments and wage garnishments affecting you now or in the last seven years
This information will have a negative impact on your credit score. However, once it has been more than seven years, or ten years for bankruptcy, do file a dispute with the credit bureau to request that the information be removed. Once it comes off, it will no longer harm your credit report and it will improve your credit score.
There are two types of credit inquiries to know about. One comes from creditors who you fill out an application for and request a loan from. It can also include quotes. These hard inquiries do affect your credit score.
Ensure they are requests you actually made. If not, dispute the information with the credit bureaus. If the inquiries are more than two years old, request these to be removed. It will normally happen on its own, though.
Soft credit inquiries do not do anything to your credit score or influence your credit report. These companies are looking for consumers who may qualify for offers they have yet to send.
What Are Lenders or Creditors Looking for?
Lenders, creditors, banks and landlords pull your report to find out how much of a risk you are to them. As you look at your credit report, realize that lenders are looking at specific information. This includes:
• How much debt you currently have compared to your reported income (the lower your debt, the better)
• How much debt you have compared to your current credit limits (are you maxed out?)
• How do you pay your bills – on time, late, how late?
• Are you applying for numerous loans all at one time? (It makes you look desperate for credit which is never a good thing.)
• Do you have any negative public records (creditors believe that previous credit experiences are likely to be repeated again)
All of this data is within your reach. You can have anything removed if you can prove it is inaccurate. In fact, if you dispute any information on your credit report and the credit bureau cannot verify it, it will remove the data from your report. Do realize there is no other way legally to remove details from your report. Improving your credit score takes hard work but making sure your credit report is accurate is a good start.
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