You credit can have a major impact on so many aspects of your life, and it is important that you know what is on your credit report and how to manage it. Understanding your credit can appear complicated and challenging; however, it can also be a powerful tool. In this three piece series we will go over understanding your credit report, understanding your credit score, and establishing your credit.
Our credit plays a big part of our daily lives. Sometimes we do not realize this until someone starts asking us about it. Our credit determines our cost of lending. Essentially, credit effects interest rates, the price and ability to obtain insurance, housing opportunities, and our ability to obtain certain jobs. While credit can and should be used to improve our financial well being, many people struggle with excessive debt obligations because of the mismanagement of their credit. Using credit wisely is the key to assisting you to a world of possibilities.
You should be checking your credit at least once a year from each of the three major credit reporting agencies: Equifax®, TransUnion® and Experian™. You should also check your credit report anytime you think that your information may have been compromised. Each of your three different credit reports most likely will have slight deviations, but on the whole each should be relatively similar as most major lenders report to all three agencies while some of the smaller agencies and collection companies may only report to one of the three.
To get started, you will need to pull your credit report from each of the three credit bureau reporting agencies listed above. You can access all three agencies at one time through sites such as www.annualcreditreport.com, which provide a free credit report from each of the three major credit reporting agencies. You can also get your credit report through many credit card providers, which provide monthly credit report tracking tools for free as long as you have an account with them. These programs vary by company and usually only provide access to one of the major credit reporting agencies, but they are useful tools for tracking and learning about your credit.
Once you have access to your credit reports it’s important to understand the information on them. Your credit report is typically divided into categories consisting of your Identifying information, credit inquiries, public records, and account information.
The identifying information on your credit reports is essentially all your personal information, including:
- Name, known aliases, and previous names (these may include maiden names, other married names or nicknames; for example, if your legal name is Stephen but you go by Steve, then Steve will also be listed)
- Social security number
- Date of birth
- Current and former addresses
- Current and former phone numbers
The purpose of the identifying information section of your credit reports is to verify the information you have provided and to look for any warning signs or red flags regarding incorrect information. The information should be reviewed carefully to ensure that your identity has not been confused with someone with a similar name or a relative with the same name. You may be able to tell whether you have been a victim of identity theft. Should you find a discrepancy in any of the information on your credit report you can file a dispute or an update to change it.
In the inquiries section of your credit report you will find a listing of creditors and other companies that have requested your credit report over the past two years. There are two types of credit inquiries, soft and hard inquiries.
- Soft inquiries are a result of companies purchasing or obtaining your information for promotional purposes or a current creditor checking your account on a regular basis.
- Hard Inquiries are made when you have applied for credit through a financial institution. Close attention should be paid to any unauthorized hard inquiry as it could be a sign of identity theft. These inquiries can also negatively affect your credit score.
The public record section of your credit reports will display financial activity such as foreclosures, bankruptcy, tax liens, and civil judgments against you. Ideally, you want this section to be blank as anything displayed in this section can penalize your overall credit score.
Your account information is where you will find the specific details of your account history. This will likely be the most significant portion of your credit profile. It is here that you will find the specific details of your credit history from current and past creditors. Each creditor will have their own section containing information regarding:
- Payment history
- Credit limit
- Dates accounts were opened and closed
- Most recent payment amount
- Current balance
If the account has not been managed properly the account will reflect this in the history, including current or previous late payments, and cases where accounts have been closed by the grantor or even transferred to collection.
Understanding how to read your credit report is a start, but you need to know your rights and resources, as well. The Federal Trade Commission, which protects consumers by preventing unfair, deceptive or fraudulent practices in the marketplace, enforces the Fair Credit Reporting Act and Accurate Credit Transactions Act, with which the credit reporting agencies must comply. Accordingly, you have the rights to:
- Be told if information on your credit report has been used against you, such as being declined for credit or employment due to information obtained from your credit report.
- Know what is on your report and having free access to your credit report annually. You also have the right to view your credit reports should you believe that you are a victim of identity theft or fraud, and if you are on public assistance or unemployment.
- Request to see your credit score, though you will have to pay for it.
- Dispute incomplete or inaccurate information, though the credit reporting agency must investigate should your dispute be frivolous.
- Have inaccurate, incomplete or unverifiable information corrected or deleted by the credit reporting agency within 30 days of being notified, though they can and will continue to report should they confirm that it is accurate.
- Remove most negative information from your report after seven years and remove bankruptcies that occurred more than 10 years ago.
- Limit access to your report to those with a legitimate business interest .
- Privacy regarding credit reports, wherein a credit reporting agency may not provide information to employers without written consent.
- Opt out of “pre-screened” offers of credit and insurance by calling the nationwide credit bureaus at 1-888-5-OPTOUT (1-888-567-8688).
Another great resource for understanding you rights is the Consumer Financial Protection Bureau. They regulate the offerings and provisions of consumer financial products and services under the federal consumer financial laws. This is a great site to visit for additional information that will help you to become a better informed consumer of financial products and services, such as lending and how it relates to your credit.
Your credit reports are a record of your borrowing history and how you have managed your financial obligations. Knowing how to read your credit reports is an important step in helping yourself understand how to better utilize your credit to help you succeed financially and ensure that you are protecting yourself from identity theft and fraud.
Tell me your stories and your thoughts by leaving a comment below. Let’s have a better money conversation.