How to Read a Credit Report and Understand Your Credit Score

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Below, we explain how to read a credit report, how it is tracked, and why your credit report is important.

What makes up your credit report, and why is it important?

Credit reports can effect key financial decisions in our lives. They are consistently changing and constantly updating. They can also be difficult to comprehend.

Some common misunderstood areas include what goes into your credit report, or what people are looking at when they look at your credit report. Below, we’re going to tell you about the key elements of your credit report, how it is comprised, how to read a credit report and why it’s so important.

What’s In A Credit Report?

how to read a credit report equifax

Your credit report aims to portray an accurate representation of your credit history and background. It compiles various levels of information to achieve this goal.

For one, a credit report provides basic information: your name, address and social security number. This also can include other types of basic information, such as:

A credit report also shows the general statements of your account history, providing a detailed background on your financial history, including credit accounts and loans. The amounts, start dates and payment history are all shown as well.

If any information is negative, this is also included here. Examples of negative information include public record of bankruptcy and payment demands. Negative marks in your credit report are typically disposed of after seven years.

Every credit account or loan is gathered, with information on the starting point of each account and the amount of said loan or card. This includes credit cards, car loans, mortgages, retail accounts and student loans.

Credit inquiries are also shown in your credit report. When someone accesses your credit report information to make a financial decision on accepting a card or loan request. This only includes the type of inquiry that affects your credit (known as a hard inquiry or hard pull), and not a soft inquiry or soft pull.

Some examples of these types of inquires include promotional inquiries, consumer disclosure inquiries, and credit application inquiries.

What affects your credit score?

Your credit report is comprised of loads of information and constantly updated by credit reporting companies in the credit bureau. Scores can come in differently based on the algorithms the credit reporting company uses to collect information.

90% of lenders use scores comprised by FICO reporting companies when it comes time to make a lending decision. FICO companies are Equifax, Experian and TransUnion. Most subsidiary companies such as loaning companies, banks and credit score applications are reliant on the information provided by FICO-based credit reporting agencies.

Per their website, a FICO score is comprised by:

reading a credit report

Payment history is the most important chunk of information that FICO scoring accounts for. This monitors whether or not you’ve made paid accounts on time in the past.

The second collection of data that is pivotal to your FICO scoring is the amounts that are owed, simply meaning the amount you owe in credit or via loans. The more you owe on your credit line, the more likely it is to affect your credit score.

Third, FICO tracks how long your accounts have been open. A long and positive track record is more reliable than a short and positive track record.

Next, the type of credit in your credit report has to do with the different types of accounts you have open and their respective amounts.

Lastly, monitoring new credit lines indicates the potential for a swing in your credit score. You should try to check all three FICO-based scoring companies, because they may have a slightly different credit score number for you and companies may have a different method than you when it comes time to check credit score.

Why Knowing How to Read a Credit Report Matters?

As finances become more and more challenging, understanding your credit report is crucial when it comes time to make key financial decisions.

Lending companies and card companies will be looking at your credit report when it comes time to make these decisions; including approval of credit cards and loans, or even a mortgage or auto loan.

Often, landlords view your credit report before signing onto a lease to show stable financial history, and sometimes your credit report can be part of the application process for a new job.

Because your credit report becomes such an important aspect of these decisions, it’s best to stay ahead and aware of how you score in your credit report.

First and foremost, it is a good idea to monitor your credit report routinely.

Make sure to check your credit score often, and stay on top of payments.

Your credit report can be daunting, but with a steady mindset and an ability to stay on top and aware of your credit report, it will remain positive and accurate.

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