Your credit report has a lot of information on it. Some of it is necessary for banks and credit unions to make decisions as to whether or not to lend you money. Some of it is arbitrary and has absolutely not bearing on whether or not you are credit worthy. And yet there is quite a bit of information on your credit report.
Do you know how to read it?
You should. In fact, if you haven’t pulled your credit report and looked at it in the past 6 months then I am going to tell you to get yourself over to www.annualcreditreport.com and get a free copy right now.
You’re probably thinking, but what’s the big deal? Why does it matter?
Well, the big deal is that if there is incorrect information on your credit report, it could not only affect your FICO score but your overall credit health. If you go need to get an auto loan or a mortgage, you could be denied.
Making sure that creditors are reporting your payments as paid on time is important to your overall credit history. Checking how many times your credit has been pulled allows you to see if someone may be trying to apply for credit using your financial information. And verifying that your addresses, date of birth and social security numbers are correct and not associated with other names and addresses puts you in control and allows you to make sure no one is trying to use your information or steal your identity.
Knowing how to read a credit report can be intimidating and overwhelming. There is a lot of information.
I have created some graphics that break down how to read a credit report – if you are confused put your questions in the comments and I’ll be happy to address them.
When you look at your credit report the first bits of information will be your name, address, date of birth, social security number and possibly your employer. You will want to verify that all the information is correct. If it’s not you will want to make sure you have the incorrect information removed. This information could cause potential issues down the road. It could be associating your personal information with someone else or someone may have entered your information incorrectly in the past and so that information has now shown up on your credit report. If you have that information removed, it will be less likely to hinder your financial health in the future – because it could ultimately do so. Sometimes other peoples financial information will start to show up on your report because their social, date of birth or address matches the information on your report. Take care of it as soon as it appears and you have less likelihood of it affecting you in the future.
After you have looked that information over you will want to look at the profile summary. This information directly correlates with how your FICO score is calculated. You will want to look at if you have any public records, how many open accounts or tradelines you have opened and you’ll also want to look at your balances and if you have any delinquent accounts. You will also at this time want to verify that all accounts are satisfactory and nothing shows delinquent. You will also want to check for public records, these will adversely affect you. Usually a phone number will show up so you can contact the court for further information and take care of it should it still be open and working against you. If it’s paid in full, it should show that on the report.
Once you have reviewed your profile and looked over your FICO score, you will want to look at your trade lines or credit lines. You will be able to tell if an account is open or closed and see if there is someone else on the account with you. Also, you can see if there is an authorized user on this account – this is someone who is piggybacking off of your FICO score and good credit to raise their own credit situation and FICO score. All of this information is important to verify. Make sure you double check statements, verify that all information is correct and up to date and make sure that any accounts you have closed are showing as closed on the report. It is really important to verify that all accounts are open or closed and up to date so that you don’t run into issues down the road. Please be aware that utilities and collection accounts will show up on here as well. And just because a loan or credit card has been charged off, that does not mean you are off the hook for making the payments and bringing the account current. You are still going to be considered responsible for that amount and it will work against you if you need a loan in the future.
The final piece of your credit report is the number of inquiries or the number of time someone has reviewed your credit report. You need to make sure you review this to make sure that all inquiries are yours.
Inquiries should not exceed 3-6 in a 1 year period. You need to be aware if you go through a mortgage broker or apply for an auto loan through a dealership you will have your credit report pulled multiple times and this could hurt your FICO score. And it can also hurt you if you decide to apply for a loan or credit card right after you apply for a mortgage or auto loan. Lenders will think you are shopping around for credit and most likely, unless you are buying a car or getting a mortgage, want to know and understand why.
Understanding how to read a credit report and how your FICO score is calculated is really important. You need to protect your financial health. You need to verify that all the information is yours and that up to date and that the information on there belongs to you alone. You do not want to lose your financial health or be unable to get a loan because you never bothered to check on something that is easily attainable and free!
Make sure you go to www.annualcreditreport.com and pull a copy of your credit report today and then verify that the information is up to date. If you need to dispute something on the report, you can join us at www.facebook.com/groups/creditsavvydiva. I will be sharing how to submit a dispute and who to contact.