If there is one financial document that tends to be very mysterious is a credit report. By now I know many of you are aware of the importance of a credit report but despite that most of us still don’t know where to start with a credit report let alone what information to look for. Not to worry though, here is how to read a credit report like a pro and make meaning out of your current financial situation.
Lets first start with the basics, a credit report, regardless of the credit-report agency that issued it, usually contains four categories, that is;
Information about your identity – This usually includes your name, social security number and home address.
Your credit accounts – This includes type, balance, limit as well as the date that they were established.
Credit inquiries list – This usually contains information on anyone who has tried access details of your credit report in the past two years.
Information on your credit payment –This usually contains information on bankruptcies, debt, judgments in your name and liens.
That said, information that is contained on your credit report might vary depending on the credit-report agency and therefore it is advised that you obtain a credit report from all the credit report agencies so as to get clear and exact information about your credit.
What to look for
Now that you know what type of information is usually contained on all credit reports regardless of the report agency, here are certain areas that you should pay close attention to given the fact that they are prone to having errors.
Your payment history plays a big part in determining your credit score. In fact, it actually makes up 35 percent of your total credit score. Therefore it’s important that you take a look at account delinquencies and any late payment that have been report on your credit report. Always ensure that you note down how late the payments were and how long ago were the payments made. If the payment was made 60 days late then that will have a very negative influence on your credit report.
Next up will be to focus on your accounts. In some cases, there are certain closed accounts that are usually not acknowledged as closed or even certain accounts that are opened and you didn’t know existed. It is advised that you be very careful while checking your accounts as you can easily tell if you are a victim of identity theft.
Accounts in collections, judgments, liens and bankruptcies
Always ensure that you check collection activity, judgments, liens or even bankruptcy on your credit report. The reason why you are checking is to ensure that the information provided is correct. The best way to do this is to check the dates and see whether they are all accurate.
Hard credit inquiries
They usually appear on your credit report if you have tried to get a new credit, be it a credit card or a loan. Hard credit inquires appear only if paperwork has been done and these papers were signed by you, therefore it is crucial to ensure that this requests were made by you.
This makes up 30 percent of your score and therefore be very careful with this piece of information. Debt-to-credit ratio simply means credit utilization. In other words, the credit amount that you are currently using in comparison with the amount that is available to you. Do ensure that you are not using more than 10 – 30 percent of the available credit.
What to do if there is an error?
So you have been careful when reading your credit report and you happen to notice that there is an error what should you do? Once you notice an error on your credit report immediately notify your credit reporting agency. Thanks to advancement in technology, you can now report disputes regarding your credit report online. Despite the fact that you can apply online, it is advised that you go the old fashion way and report the dispute via a written letter. If you choose to take this route, be sure to state the disputed items clearly, the facts surrounding and also why you believe that the information indicated is wrong. Do ensure that you submit all documents and file that supports your claim be it online or via a written letter.
Once you have submitted your dispute, be on the lookout for a response from the credit reporting agency. This response is usually within 45 business days. In the response, you will be notified of whether or not your claim was noted and the information changed or if it couldn’t be proven and thus it was never changed. If you still fill that there is an issue after receiving the response from your credit reporting agency, you can file a complaint to address your issue with the Consumer Financial Protection Bureau. Once you file a complaint, both you and your credit reporting agency will be notified of what will happen next.
Now that you have a good understanding of credit report and the information they contain always ensure that you take it very seriously as its one way you can be able to tell if you are a victim of identity theft.