Know what your credit report says. Check your credit report. Have you seen your credit report? It seems that someone always suggests a deep dive into our credit reports.
But do you actually know what that means? Do You Even Know How To Read A Credit Report? If not, it is time to study so that you understand your financial condition. The credit report that leads to a credit score determines how much money you can borrow and at what interest rate. This affects your large purchases – home, car, boat, etc.
The first step is to understand the basics of the elements of a credit report so that you can find the red flags.
There are three primary credit bureaus: Experience, Equifax and TransUnion. These companies keep track of the loans you have taken out and your payment history. Based on this information, they will give you a three-digit score. You want to get higher than 670, possibly over 700. Read more about what your credit score means.
How to read a credit report
You know why your credit report is important. But what you may not know is how to decipher the credit report yourself.
So let’s start here.
The credit report is made up of five elements: personal information, credit history, credit inquiries, public records, and creditworthiness.
In general, you should check your credit report for any warning signs or errors. These red flags can range from false information like an incorrect social security number or fraudulent activity like a credit card opened on your behalf that you never applied for. Incorrect information on your credit report can damage your financial reputation. A better understanding of your credit report – and what should and shouldn’t be there – can help you spot mistakes that can affect your financial health.
If you’ve ever been struck by incorrect information on your credit report, you are not alone. According to at least one in five people, an error has occurred in at least one of their credit reports a study by the Federal Trade Commission.
Check out what a false accusation Sent to a debt collector to do a woman’s credit report.
How Do Bad Credit Scores Come About?
When you’re applying for a loan, applying for an increase in your credit limit, or even applying for a new job, your credit report is likely to come into play. These are the reports that companies and institutions use to review your credit history and your ability to qualify for everything from loans to jobs.
So how do the mistakes even come about? Some may be the individual’s fault, while others suggest a mix-up in the volume of data that the credit bureaus process on a monthly basis.
Each of the large offices must manage more than 200 million credit files, resulting in more than 1 billion data updates per month. according to the Brookings Institute. With this amount of data, it’s no secret why errors can occur.
However, maintaining an accurate credit report rests on the shoulders of the individual. Make sure that your credit report is correct to ensure that you are getting the best loan rates on large purchases, as well as the best credit card rates. You can check your credit reports each year at annualcreditreport.com free.
The elements of a credit report
Let’s break down what each piece of the credit report is and what warnings to look out for:
These are the basics of who you are as a borrower. This information includes biographical information such as your name, date of birth, address and your last years of employment and income. It is important to double-check all of this information, especially your employment and income information. Often times, this information is incorporated into your creditworthiness and timely repayment.
Look for red flags: It’s all about the basics here. Is your address correct? Is your last name spelled correctly? There is also the possibility of fraudulent activity here. Make sure no one has added any statements to your credit report that provide inaccurate information about you.
Credit history and accounts
This section of your credit report lists the “types” of credit accounts you have. Generally, they fall into three categories: mortgage, car loan, and credit card. Also included are the time the account was opened, the amount, the balance owed and the payment history.
Accounts are displayed as either “good status” or “negative”. This may seem simple and straightforward, but it is still a good idea to double-check that these “good” accounts reflect correct payment history.
Look for red flags: Make sure payments appear on the correct date and do not reflect late payments. This can negatively affect your score. In fact, the credit history portion of your report contributes to much of your creditworthiness (more on that later).
Whenever you apply for a line of credit or a loan, the lender will access your credit report, which is known as an “inquiry” or “withdrawal”. Some of these requests have more impact than others. Queries are usually classified as “hard” or “soft”.
A hard pull is done when a creditor or lender accesses your report because you requested something specifically. A “soft” pull is generally done when a creditor or lender tries to “pre-approve” you for a credit card or loan offer.
Look for red flags: It’s always a good idea to see who is accessing your report. Are the hard inquiries actually inquiries initiated by you? If you find that a company is accessing your report that you know you haven’t contacted, contact the credit reporting agency and let them know of this activity. The good news is that you can see who is accessing your report, including the date of the request, the name of the creditor, and the type of deal.
Did you know that more credit and credit account information can appear on your credit report?
Your credit report may include information from public records, including child support orders, tax liens, and bankruptcies. That’s because credit bureaus access information from public records from state and local courts.
Any debts that you have not paid and that are still in the process of being collected will also appear on your report and may become a court judgment.
Look for red flags: If you have negative records like a judgment or bankruptcy, make sure they don’t stay on your report longer than necessary. For example, most negative or overdue accounts should only stay on your report for seven years. Make sure to remember when to review your report to make sure negative information is showing up at the right time.
This is the fifth and perhaps one of the most important aspects of your credit report. Each of the major credit bureaus will determine their own score for you based on various weighted elements of your report.
In general, credit history length, payment history, the amount of your debt on each account, new inquiries, and types of credit accounts are all used to determine your creditworthiness.
Look for red flags: If your score is lower than expected or has changed dramatically without new accounts or changes to existing accounts, it’s a good idea to check your credit report for inaccuracies. This could be the first sign that something is wrong.
Contributor Nicole Hutcheon is a seasoned journalist whose work has appeared in Ebony Magazine, 83 Degrees Media, Tampa Bay Times, Richmond Times-Dispatch, and Florida Designers Review.
This article originally appeared on www.thepennyhoarder.com