Understanding Your Credit Report
By Kristi Vaughan
“Great,” you say. “I am now entitled to a free copy of my credit report every year but how do I read it?”
Credit report basics
Although the three credit reporting companies Experian, TransUnion, and Equifax have different reporting formats, the information they collect is the same.
Each credit report contains:
- Personal information including name, address, recent address and Social Security number
- Summary and history of accounts including payment history and information on accounts that negatively impact your credit rating
- Requests for credit history lists the inquiries made about your credit report
- Personal statement is an opportunity for you to explain any questionable items in your credit report
Credit scoring
Credit scoring is the system used to determine whether you are a good credit risk. The three major credit reporting companies evaluate key factors such as bill paying history, number and type of accounts, late payments, collection actions, outstanding debt and age of accounts. Points are assigned to key factors with the total number of points making up what is known as a credit score.
Under the Fair, Issac and Company system developed in the1980’s (FICO®) and used by the major credit reporting companies, the maximum score anyone can get is 850 and the minimum is 300. The higher the score, the better the credit risk with most people falling in the 600-700 range. You can learn your score by contacting the reporting companies and paying a fee for the report.
Credit scores can change rapidly since new information is available to the credit reporting companies every time you open a new account or pay off an outstanding bill. Scores can be lowered if you have a record of late payments, if you owe 50 percent or more of your credit limit, if you have opened multiple new accounts in a short time or if there have been a large number of inquiries into your credit history. You score is improved if your accounts have been in existence for a long time.
Fixing errors
Errors do occur in credit reports and each of the credit reporting companies have mechanisms for reporting and correcting errors. Credit reporting companies recommend that you first contact the merchant or credit card company associated with the error. They can correct the error and send an updated report to the credit reporting company. If this does not work, then contact the credit reporting company directly.
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