If you are looking to buy or refinance a home, purchase a new car or even get car insurance, your credit score will have a big impact on the rates you’ll be able to get. In some cases, your credit score can help you get a better loan interest rate or less expensive insurance price. Your credit score is directly linked to the information contained in your credit report, so making sure that your report is as clean and accurate as it can be will help you get the best terms on your financial transactions.
You actually have three credit reports, one with each of the three main credit bureaus, Experian, TransUnion and Equifax. You’ll need to check each report for accuracy at least once a year, and prior to completing an application for a loan. Thankfully, the three bureaus use the same format, so you can simply repeat the same tasks for each to be sure your report is as good as it can be. The report areas are detailed below, along with tips about what these sections should ideally include – and some potential problems to watch out for.
Identification and personal information:
The first section you’ll see contains information about you – your name, address, social security number and your date of birth. Double check this section for accuracy and completeness; it sounds silly, but mistakes happen and you want to make sure all of the information is actually yours.
This is likely the largest section of the report, and lists each company who has granted you credit, along with a record of how you have used that credit. You’ll find current and past accounts here – most types of credit stay on your report for 7 years.
For this section, you’ll usually see the name of the entity that you owe money to – so your mortgage company, the finance company for your car, and credit cards, if you have them, will be listed here. Each listing will contain the name of the business, your account number, and the type of account it is. You’ll also find details about the account status-is it open or closed, paid in full or still outstanding? These details can be found in this section. Double check each listing to be sure it is identified correctly. A few of the abbreviations you may see in this section include:
I – Individual Account
U – Undesignated Account
J – Joint Account
A – Authorized User on Account
C – Co-maker/Co-signer on Account
S – Shared Account
Each listing will also provide the details about how you have managed the account, including your payment history (on time payments are obviously best), any late payments of 30, 60, 90 days or more, charge offs and accounts sent to collections. You’ll also see details about the total amount you borrowed, how much you’ve paid back and what your current balance is. Some credit reporting errors use numbers to represent payment history – 0s and 1s are good, high numbers are bad.
Review this section very carefully, and double check it against your own records. The information here, even if it shows you paid everything on time, can damage your credit score if it is not correct. Why? Because if your utilization is shown as too high, meaning it looks like you are using every dime of your available credit, your score will suffer. If your balances are incorrect, or an account that has a zero balance is actually showing a different amount, you may need to correct this information.
This is the section that you should review most carefully, since it is the one most likely to contain errors – and those errors can cost you big when your credit score is calculated. Collection agencies are notorious for putting inaccurate information on credit reports, and even a single collection account can damage your score.
Review each collection account for the following:
Is it yours? Incorrect accounts or accounts that belong to someone else are a common mistake.
Is it valid? If it is your account, should it be listed as a collection at all? If something was paid to the original creditor and is mistakenly listed as collections, you’ll need to dispute it and clear it off. Check to make sure the account should really be with collections in the first place.
Is the debt within the seven year reporting period? A debt from 1990 should not be included on your report since it is more than 7 years old, as long as it has had no activity. You’ll need to ask for validation or even begin a dispute process to have old or outdated information removed from your account.
For this section, blank is a good thing – anything listed here will negatively impact your credit score. This section will contain liens that have been placed against your property, lawsuits you’ve lost and other unpleasant items. Double check to see if there is anything listed here that shouldn’t be, and fix any errors promptly.
This final section details the different agencies that have requested a peek at your credit report. You may see some familiar names here -if you’ve applied for a loan, gotten insurance or even applied for a job in some industries the entity you applied with may take a peek at your report. More of this type of inquiry, particularly credit applications generated by you, can impact your score and you should avoid applying for many different things at once, since they will show up here.
You’ll also see a bunch of companies you’ve never heard of in this section – a basic copy of your credit history may have been pulled for promotional purposes. If you’ve ever received an offer of a credit card or loan in the mail, this is where that company got your information and made an initial determination that you might be a good customer. Promotional inquiries like this do not impact your credit score, though opting not to receive them may reduce the amount of junk mail you receive.
Once you’ve read through your report, you can spot any areas that need to be changed or addressed-highlight these with a bright marker as you review and you’ll know how much work you’ll have to do to repair your credit. Once you get a handle on reading and understanding your report, you can begin to take control of your own financial outlook and start getting better terms and rates.