Your personal credit report is used to evaluate your creditworthiness when taking out a loan, opening a credit card, renting an apartment, and sometimes even getting a job. With that being said, it’s incredibly important to know how to read your credit report and understand the information it contains.
If you’ve ever noticed negative changes to your credit score or have been denied a line of credit you thought you were eligible for, there could be derogatory marks or errors on your credit report that are completely removable. Knowing how to locate potential errors on your credit report can be a major step in optimizing your credit.
What Is a Credit Report?
A credit report is a compilation of your pertinent financial details involving your credit activity and current credit situation. Credit reports list various debtors that you have, such as credit card issuers, banks, and sometimes even your landlord, utility company, or collections agencies.
Think of it like a report card that tells lenders whether or not you are likely to pay your debts on time. Whenever you apply to borrow money (like through a loan or credit card), the lender will likely look at your credit report and use that information to determine whether or not they should lend to you.
In the United States, there are three main credit reporting agencies that store your financial data in the form of a credit report – Experian, Equifax, and TransUnion. So instead of one main credit report, you actually have three. They may slightly differ from one another, but for the most part, the information found in these three reports should be consistent with each other.
Where Can You Get a Copy of Your Credit Report?
In order to obtain a copy of your credit report, you will need to request reports from all three credit reporting agencies. This can be done by going to their individual websites and paying a fee, or you can go to AnnualCreditReport.com and request copies of your credit reports for free every 12 months.
What Information Is on Your Credit Report?
Your credit report can range anywhere from a few pages long to over a dozen pages long. When first reviewing the information, it may feel intimidating going through all of your data and understanding what it all means. Here’s a breakdown of the general information you can expect to see on your report.
The amount of personal information available on your credit report can be a bit shocking at first glance. Toward the top of this section, you’ll find your most basic personal information, such as your name, date of birth, and social security number. As you scroll a bit further down, you’ll also find any previously used names. You will also find other personal information like:
- Current and previous addresses
- Mobile and home phone numbers
- Current and previous employers
If you find anything in this section that is incorrect, filing a dispute is pivotal. One of the most important reasons to keep this portion of your credit report clean is that identity verification questions are based on the data.
When you apply for new credit, questions such as “What was the address you rented in Los Angeles in 2014?” or “Choose the name of your employer in 2016” may come up to verify your identity. If the address or employer name is wrong, you may experience difficulties being approved for the new credit all because some of your personal information is incorrect or misspelled.
Credit history is arguably the most important section of your credit report. In this section, you will find every single detail with regards to your open credit accounts (and closed ones from the past 7-10 years). Each loan/line of credit will have the following information listed:
- The name of your lender
- Account opening (and closing, if applicable) dates
- The current balance on your account (if any)
- The overall credit limit or loan amount, as well as utilization rates for revolving accounts
- Payment history
- Your current account status
If you find that anything in this section appears to be inaccurate or false, be sure to file a dispute with the credit bureaus. The only information that may not be up-to-date is your account balance. Typically, that number only reflects the most recent reported statement balance and not your balance in real-time.
It’s also important to make sure that each account on your credit report actually belongs to you. If you find any accounts that you don’t recognize, you should consider contacting the credit bureaus to freeze your credit and file a dispute immediately. Unrecognized accounts are a telltale sign of identity theft!
If you’ve ever applied for a loan or credit card, chances are you’re familiar with what a credit inquiry is. A credit inquiry will appear on your report when a potential lender requests to review your credit report in order to determine your eligibility for a new line of credit. There are two different types of credit inquiries; hard inquiries and soft inquiries.
Hard Inquiries vs. Soft Inquiries
You’ll typically receive a hard inquiry on your credit report whenever you apply for a new loan or credit card. Hard inquiries are the type of inquiries that people warn you about. They lower your score by 5-10 points for a period of time – typically around 1 year.
Soft inquiries are typically the type of inquiry that banks use to prequalify you for a loan or credit card. These inquiries don’t impact your credit report and typically aren’t shown by credit score tracking mechanisms offered by banks and other third parties.
When combing through your inquiries section, you should pay particularly close attention to the hard inquiries on your credit report, as these inquiries only result from applying for a loan or line of credit. When it comes to soft inquiries though, don’t be too frightened if you see an institution you’ve never seen before.
This is because there can be “promotional soft inquiries” ran on your credit by banks/lenders that want to send you promotional prequalifications (i.e. junk mail/spam emails). So chances are, if you get a lot of junk mail from financial institutions, you’ve probably got quite a few promotional soft inquiries on your credit report.
This section of your credit report is reserved for information that is also on file with your local, county, state, or federal court. This information includes legal judgments, lawsuits, bankruptcies, tax liens, and more.
Why Is Your Credit Report Important?
Your credit report is used to evaluate how trustworthy you are when it comes to paying back borrowed money. The health of your credit report can determine whether or not you are eligible for lines of credit and what you’re loan terms will be.
Borrowers with high credit scores will pay much lower interest rates than those with low credit scores. This is because they are perceived as less risky to lenders, so they pay less of a premium. Additionally, if your credit score is low enough, you might not even be able to open a credit card or take out a loan because you are perceived as too risky by the lender.
In order to demonstrate how important having a stellar credit report is, here’s a brief example:
Jane and Jack are both looking to take a personal loan out for $10,000 with a term of one year. Jane has a great credit score of 800, whereas Jack has a 600 credit score. When they apply for the loan, Jane receives a loan with an interest rate of 6%, while Jack’s loan has an interest rate of 35%. Over the life of their loans, Jane will pay about $600 in interest, and Jack will pay roughly $3,500 in interest.
If you want to save money in the long run, consider taking some time to clean up your credit report before you take out any large personal loan or mortgage. Making changes now will ensure that you will save money over time with lower interest rates.
What if There Is an Error on Your Credit Report?
As we discussed above, there is a lot of information listed on your credit report, so there are a lot of opportunities for something to be listed incorrectly. When you get a copy of your credit report, scan it thoroughly, and be sure to take note of anything that you don’t recognize. Some common errors you might find on your credit report are:
- Account status reported incorrectly (i.e. account reported as late when you’re up-to-date on payments)
- Employers listed that you’ve never worked for
- Addresses listed that you’ve never lived at
- Accounts that you don’t recognize or never opened
If you find any of these errors or another error that isn’t listed here, you should contact the credit bureaus to dispute this error.
How to Dispute an Error on Your Credit Report
If there are any errors on your credit report, you should quickly dispute them with the credit bureaus. Doing so is fairly easy, and can be done through the mail, online, or by phone. Below is a list of all three credit bureaus and how to get in touch with them to dispute an error.
By mail: Equifax Information Services, LLC, P.O. Box 740256, Atlanta, GA 30374-0256
Via their online request system
By mail: Experian, P.O.Box 4500, Allen, TX 75013
Via their online request system
By mail: TransUnion Consumer Solutions, P.O. Box 2000, Chester, PA 19016-2000
Via their online request system
Once a credit bureau receives your dispute, under the Fair Credit Reporting Act (FCRA), they are required by law to correct or delete any information from your credit report that is considered incomplete, unverifiable, or inaccurate within 30 days.
Having a good base knowledge of your credit report, how to read it, and how to correct any inaccuracies is incredibly important. Just one piece of incorrect information on your credit report can be the difference between being approved or being denied for a loan.
It’s needless to say, but your credit report and all of the information on it are incredibly important to your financial success in life. That’s why it’s crucial to take a look at your credit report at least once per year and make sure everything is in order. It doesn’t take very long to do, and even finding one error could significantly improve both your credit and your life!