Decoding Credit: How to read and make sense of a credit report
Credit is a pervasive part of our lives. Credit is also complicated. You may never have applied for a loan, or tried to buy a house, but many of the actions you take in your everyday life are constantly being compiled to make up your credit history, and a credit score being applied against it. Most people in the US don’t understand the black box of how creditworthiness is determined, or how scores are calculated, but the first step to understanding your own credit is to get hold of your credit report from one of the three major US credit bureaus – Equifax, Experian, and TransUnion.
The standard US consumer credit report is broken down into 5 parts or sections. Each of these sections tells a potential lender about how you’ve handled credit cards, loans, and other obligations in the past.
- Personal Information: This is all the basic information needed in order to identify you and associate you with your report, such as your name, address, and reported employment history.
- Account Information: This is a history of all the credit accounts you’ve ever opened throughout your life. This will include things like credit cards, loans, and mortgages, and information on when these accounts were opened and closed.
- Collections: This is a record of any accounts you’ve held in which payment has been delinquent (either unpaid or late payments) and a summary of the payment status.
- Public Records: This is a record of any judgments against you. It may include things such as court judgments, wage garnishments, or bankruptcy filings.
- Inquiries: This is a record of any requests for your credit report submitted by potential creditors, such as landlord inquiries or credit card applications.
The kinds of liabilities and accounts included in your report will only include those accounts where you are extended some form of line of credit, with a requirement for regular payments. Your report won’t include general assets such as checking or savings account information.
It’s important to note that often credit reports contain errors (approximately 25% of credit reports had errors in 2017 according to the CFPB). Collections, for example, will usually only remain on your credit report for 7 years and then be removed automatically, however, sometimes this doesn’t happen. In instances where they don’t disappear automatically, it’s up to you to file a correction to get them removed. Another area errors frequently arise is in the employment record, as many employers do not report employment to the credit bureaus. Understanding and monitoring your credit reports is critical to building and maintaining good credit.
Find out everything you need to know about credit scores and credit reports.
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