A credit report free of red flags will give you a high credit score, and it will open you the doors to the loan you need. And vice versa: a credit report that shows inaccuracies or late payments will make banks and other lenders distrust your ability to pay off your debt. In other words, it will make it harder to get a loan.
In this guide we’ll show you how to read your credit report, its sections, where you can get it, and what you should do when you find inaccuracies or errors.
What Is a Credit Report?
Before we delve deep into how to read your credit report, we must clearly understand what it is. A credit report contains a large amount of data about your financial history. It records the accounts and lines of credit in your name, but above all, your credit report says if you have fulfilled your financial obligations on time.
It also includes information about the amount of debt you have accrued, how you pay your bills, where you live and what’s your occupation. It also lists financial data from public records, such as foreclosures, lawsuits or bankruptcies. Finally, it shows any past queries made to your report (who has made them and when).
Who Makes the Credit Report?
All the companies that you have done business with in the past, besides banks, credit card companies and other lenders, report your payment history to the credit bureaus.
Using your Social Security Number or your ITIN number, and based on your credit history, the three major credit bureaus in the US (Equifax, Experian and TransUnion) assign a credit score to your financial statement, or in other words, they determine how solvent you are and what are the chances that you pay your debt on time.
What Is a Credit Report Used for?
Based on this credit score, the lenders decide whether or not to approve your loan application, and also how much money they can lend you and on what terms.
Each bureau has its own system to collect and evaluate the information, and each one gives a rating based on different parameters. But something never changes -the higher your score, the more reliable, in financial terms, you will for the lenders.
Knowing how to read your credit report will help you maintain a good credit score because you can create an action plan to improve it, thus making it easier to access any type of financing.
How Can You Get Your Credit Report?
You have the right to receive your credit report at least once a year, free of charge, by requesting it through the website www.annualcreditreport.com to any of these three credit bureaus. If you need to review your report more frequently, you can also buy it from the bureaus.
To download your credit report from www.annualcreditreport.com you must follow these simple steps:
- Enter your personal information (name, SSN, address, etc.)
- Request one or more reports.
- Answer a series of security questions about your credit history.
- Generate your credit report. You can download it on your computer or print it.
How to Read Your Credit Report
Each report is different because each bureau offers a different format. However, they all contain the same information, with some minor differences. For example, this is what your Experian credit report should look like. Click here to take a look in detail.
In your credit report, you will find different sections: your personal information, a summary of your accounts, and data from public records, among others. Let’s see each one in more detail.
Your personal information in the credit report is used to identify you. This section contains basic information, such as name, address and where you work. It can also include previous addresses and jobs.
You may find variations or even misspellings in your name. These small variations do not affect your credit score, as long as the information is yours.
This part of the credit report summarizes the information on all your accounts. All accounts in your name are listed, as is the balance of each one. It also says which ones are up to date and which ones are delinquent. These are all the types of accounts that appear in the summary:
- Real estate accounts: reflects if you have mortgages.
- Revolving accounts: credit cards and any lines of credit.
- Installment accounts: any loan that is not related to real estate, like a car or a student loan.
- Other accounts: any account that does not fit the other categories.
- Collection accounts: any account that is in the process of being charged.
This summary includes all open and closed accounts, those that appear in public records, and also the number of queries made to your report during the last two years.
This section contains most of the information in the report. It details each of your credit accounts and how you have canceled your debts.
When learning how to read your credit report, pay special attention to this section, and verify that all the information reported is accurate. These are some of the details contained in each account:
- Name of the creditor or lender that reports the information.
- Account number.
- Type of account: describes if it’s a mortgage, a car loan or a student loan.
- Monthly payment: the minimum amount you must pay each month.
- Opening date: month and year in which the account was created.
- Report date: indicates the last date on which the creditor updated the information of the account with the credit agency.
- Balance: the amount that is owed on the date on which the data was updated.
- Credit limit or loan amount.
- Observations: comments made by the creditor or lender about your account.
- Payment history: Indicates the status of your monthly payments from the time the account was established.
This section shows a list of accounts that have not been paid. Also, collections, lawsuits, repossessions, and bankruptcies are listed here. This negative information usually remains for seven years in the report, except for bankruptcies, which last up to 10 years.
This section only reflects financial mishaps, not arrests or convictions. Still, this kind of history showing in your public records can severely damage your credit, so avoid making any mistakes with serious repercussions.
Queries about your credit
This section lists all the times that someone checked your credit. For example, when you have applied for a loan, credit card, or asked for an increase in the limit of your debt.
There are two types of queries: hard pulls and soft pulls. The first ones are made by lenders when they want to verify your credit report to approve a loan application. The soft pulls, on the other hand, are also made by the lenders, but only for promotional purposes and they don’t affect your credit score.
What Should You Do if You Find Errors in Your Credit Report?
If you learn how to read your credit report, it will be easy for you to detect any inaccuracy. If you spot any simple mistake, like your data mixed with someone else’s, or payments reported as late when you actually made them on time, you must gather any document that can prove there is an error.
Then, present a dispute via email or by phone to the credit bureau that made your report. The bureau has 30 days to give you an answer. You can also ask the bureau, following the same procedure, to delete information that is too old or that is repeated.
If you find accounts that are not yours on your report, it is possible that your identity has been stolen. In this case, contact the bureau to raise a fraud alert. You should also contact the Federal Trade Commission (FTC) and file a complaint, and report the case to your lenders and the authorities.
One final tip: if you want your credit report to look “healthy”, make sure to review it frequently, pay your debts on time, and use less than 30% of your credit limit. It’s the fastest way to access the loan you need. Learn in this article other ways to boost your credit quickly.
Now that you know how to read your credit report and can take the steps to be in control of your finances, it may be the time to apply for a business loan with Camino Financial. It will only take a few minutes and it won’t affect your credit report since we do a soft pull of your credit.