Section 2 - How to Read a Credit Report
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 :
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 Heading/ Summary
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The heading is basically your name, address and social security number. Make sure those are correct, a mistake here can drastically affect your credit bureau. Pay special attention if you are a junior or the third. Credit bureaus are famous for confusing fathers and sons that share names.
The summary is just what you think it is, a summary. The problem is, it's usually wrong, because 90% of all credit bureaus contain errors. Most loan officers (LO's from here out) glaze over the summary and jump right into the meat of the bureau.
The consumer statement is absolutely useless, and has no effect on your credit score. If it makes you feel better, you can easily list a statement by writing each credit repository. If you feel that I have missed something, or need further clarification please post your comment on our blog here.
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Account History
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This section is the where your credit score will most be affected. Open our sample credit bureau 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.
- 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 (see sample report ), 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.
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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.
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Public Records
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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.
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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.
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Credit Bureaus
That does it for the "How to Read a Credit Bureau" section. I am more than positive I have left out some things that need to be addressed, I know 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 go get your credit report now! Choose from the top 5 credit reporting companies here. |
Did we leave something out? If you have comments or questions post them in our credit repair blog. |
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