How to Read a Credit Report

How to Read a Credit Report.

There are three main credit bureaus, or repositories, that report information about you as reported by your creditors. These credit repositories are, Transunion, Equifax and Experian. When you begin to work on adding and removing items from your credit bureau, these are the companies that you will be working with. You can find their contact information here.

To better understand this section, you should print out our Sample Credit Report to have as a reference, and to take notes on. The sample bureau will give you text-book definitions, and this page will focus on how they affect your credit report. Here are the 3 major sections found in most credit reports:

1. Heading and Summary
2. Account History
3. Public Records

Heading/ Summary Click for Video

The heading is basically your name, address and social security number. Make sure these are correct, a mistake here can drastically affect your credit bureau. Pay special attention here if you are a junior, senior or the third. Credit bureaus are famous for confusing fathers and sons that share names. Make sure each credit bureau has exactly the same spelling in your name and address. Differences in the heading summary are usually the reason why some items appear on one report and not the other.

The Summary Information Sectionis just what you think it is, a summary of all of your debts. This information is a good way for you to take a quick look at your credit bureau and see the total of your credit debt and payments. It’s a good tool to quickly acess if there are indiscrepancies between what the three bureaus are reporting about you. Meaning, if one bureau shows your total debt to be $10,000, the other shows $9,000 and the third shows $10,000, this is a good indicator that something is not being reported by the second company. Keep in mind, 90% of all credit bureaus contain errors and the summary is almost always wrong. The summary is basically a tool and does not affect your credit score.

The summary information section contains a list of your payment history broken down
by account type. The five types of accounts are:

1. Real Estate: Primary and secondary mortgages on your home.
2. Revolving: Accounts comprised of opened terms with varying payments, such as a credit card account.
3. Installment: Accounts comprised of fixed terms with regular payments, such as a car loan.
4. Other: Accounts in which the exact category is unknown. This could include 30-day
   accounts, such as an American Express® account.
5. Collection: Accounts seriously past due including accounts assigned to an attorney,
   collection agency, or a credit grantor’s internal collection department.

The summary includes the following information for each of the five types of accounts:

• Count: Total number of accounts you have in the given category.
• Balance: Total amount you owe on all accounts in the category.
• Payment: Total monthly payments you must make on all accounts in the category.
• Current: Number of accounts in the category that are properly paid.
• Delinquent: Number of accounts in the category for which payments are past due.
• Derogatory: Number of accounts in the category that negatively impact your credit rating.
• Unknown: Number of accounts in the category whose condition was not reported by the
  credit bureau.

This section also summarizes your open accounts, closed accounts, public records,
and inquiries.

• Open/Closed Accounts: A total number of all accounts that are either open or closed.
• Public Records: A count of any public records in your name, and the total amount of
  money involved for all public records. Public records may include judgements against you
  in civil actions, state or federal tax liens, and/or bankruptcies.
• Inquiries: An inquiry appears when an organization such as a bank or retail store
  requests a copy of your credit report. This number reflects how many inquiries were made
  on your credit report within the last two years.

The Consumer Statement For the most part, this is completely useless and has no effect on your credit score. However, if it makes you feel better, you can easily send in a statement explaining your side of the story for credit disputes. You can do this by simply writing each of the Credit Repositories. One note, if you do send in a consumer statement over a dispute. remember to write back to the credit bureaus to have it removed after the dispute is resolved. If you feel that I have missed something, or need further clarification please post your comment below.

Account History Click for Video

This section is the where your credit score will most be affected. Open our Sample Credit Report to get an exact definition to each variable that is reported. I am only going to highlight the important variables that affect your credit score and how they do so.

Length of credit history - LO’s are interested in how long you have been in the bureau. If your credit is considered “new credit”, less than 2 years, this will weigh heavy on the approval decision. If you have been in the bureau for a long period of time, and have a few paid off accounts, this can help get you approved if your credit is marginal. One way to establish credit and start building credit depth is to open a secured credit card account. This will give you a solid credit source, and the longer you leave the account open the older your account is. This is an excellent way to establish credit for your children.

Amount and type of credit – If you are carrying a ton of debt this has negative effect on your credit score. There are five types of accounts Real Estate,
Revolving, Installment, Other, and Collection., the most influential is your mortgage history. A bad mortgage history is a dead give away that you are struggling with your debt load. Most people pay their mortgages/rent first, and all of their other bills last. If you are having trouble paying your primary debt you are considered a credit risk.

Revolving credit – Revolving credit is made up of credit cards, lines of credit, checking over-draft accounts, and basically any account that has a floating rate and balance. Arguably, these accounts carry the most weight on your credit bureau next to payment history. Once a revolving account exceeds 35% (some people say 50%) of your credit limit, revolving accounts begin to have a negative effect on your credit score.

Meaning, if your credit limit is $5,000 and your balance is over $2500, this could bring your score down as much as 30%. Believe it or not, it’s better to have 3 credit cards with lower balances, than 1 credit card with a high balance. I have had many clients open additional credit card accounts to raise their credit score.

Payment History – This is obviously the most important part of your credit score. Late payments are measured in 30 day increments. This means that any payment that you make, that is NOT over 30 days late, will not affect your credit score. However, once you go over that 30 day mark it will lower your credit scores considerably.
If you are two months behind the bureau will show that you are 60 days behind. When you get 60 days down on major accounts like, cars, mortgages and credit cards most credible lenders are not going to extend credit. Late payments remain on your credit bureau for 7 years, however they carry less weight on your credit scores the older they are.

Miscellaneous – This section has a lot of other information that allows LO’s to get an over-all picture of your financial situation, i.e. debt to income ratios, account ownership and so on. I think I have covered the “biggies” that we need to pay attention to. If you feel that I have missed something, or need further clarification please post your comment on our blog here.

Public Records Click for Video

In my opinion, public records are the toughest to deal with. These are records of judgments, tax liens and bankruptcies. The reason these are the hardest to deal with is, most of the entries are reported by your city, county or federal municipalities. Having to deal with them to settle these debts makes the driver’s license bureau look as efficient as Rolex watch.

Bankruptcies – Bankruptcies are what they are, they will stay on your record for 10 years, some people say 7 years and I have seen them removed on both instances. Bankruptcies, like late payments, weigh less the more they age. In fact, I have seen clients with 700 scores a month after their bankruptcy is discharged! The problem with that is, most companies that issue credit have their own specific rules as to how long you must be out of your bankruptcy before they issue credit, regardless of your score.

Tax Liens – Federal and State tax liens are the worst to deal with. I have NEVER successfully negotiated a settlement with the IRS. This is mainly because I stopped trying to work with them for clients after the first couple of tax liens I encountered. Ironically, tax liens can be removed as soon as they are satisfied. However, in most cases, borrowers need to personally ask each credit bureau to remove them from their credit bureau, or wait for the IRS to, which can take years.

Judgments – These are usually caused by borrowers ignoring their past due collection accounts. If you own a home, and the collection or charge-off is big enough, you can expect a judgment All companies have to notify you of their intention to file a judgment by certified mail.

Most people fail to show up to court and the creditors win by default. If you get a court order to appear in court, do not ignore it. More times than not, the judge will give you extended time to pay or recommend arbitration. Once a judgment is placed on you you will have to pay the debt to remove it, and you could have your wages garnished. If you own a home it will have to be satisfied before selling or refinancing.

In Closing

That does it for the “How to Read a Credit Bureau” section. I am sure that I have left out some things that need to be addressed, however, I think I have covered the most important areas. Be sure to print the sample credit report to use as a guide when you get you own credit report. If you feel that I have missed something, or need further clarification please post your comment on our blog here. If you do not have your own credit report, and you are serious about repairing your credit, get your credit report here.