You listened to the advice of friends and family on the common tips listed in articles about personal financial management. You went ahead and ordered a copy of your credit report. But now that you’re looking at it, you’re wondering: How do you analyze a credit report?
Follow the easy guide to reading your credit report below.
How to Read a Credit Report Step-by-Step
Don’t let the formulaic nature of the credit report scare you. A credit report is just a detailed listing of (much of) your credit history. It includes the accounts you have that are open, which accounts might be closed and whether you pay the open accounts on time. Follow the steps below to learn how to read a credit report.
1. Start with the credit summary.
This is also called the identifying information section. You’ll find your name and other pertinent information, such as your current address, date of birth and potentially your Social Security number. You might also see some information about old addresses.
When you’re looking at this section, the goal is to make sure that every piece of information is as accurate as possible. You also want to ensure everything relates to you specifically. For example, if the date of birth is a day off, that’s not good. It could mean you’re getting mixed up with someone else. And even if it’s just a typo, it could impact your ability to get approved the next time you apply for credit.
Addresses where you’ve never lived (even if your family has lived there) are another common error on your report. These can indicate that credit data has gotten mixed up or that someone is using your name to apply for credit in your name.
2. Review the credit inquiries.
Next, look at the section that shows who has looked at your credit. Pay special attention to the hard inquiries. Businesses are required to get your permission to pull a hard inquiry on your credit, and each hard inquiry can bring down your credit score a bit.
If you see a hard inquiry that you didn’t approve, you may be able to dispute it and get it removed from your report.
You may also want to review soft inquiries. You can’t dispute these, because you don’t have to give permission for a soft inquiry. However, if you see a lot of activity here and it looks suspicious, it could indicate your identity might be compromised or at risk.
3. Check over the payment history section.
Look at the history of all your current accounts. Here is where your payment history is tracked — that’s whether you pay on time or have run late with your bills. You’ll find most of your current installment loans here. This section can also list your revolving credit limits and how much you owe on each account. That shows your credit utilization, which can also impact your score.
Make sure that all information here is accurate. If it’s not, you can write a dispute letter to the credit bureau asking them to investigate and make appropriate changes to the data.
4. Review any other negative items.
The final major section of your credit report is where other negative items might be listed if they exist. This can include certain public records, collections accounts and bankruptcies. Ideally, you want this section to be blank. But if there are records here, make sure they are accurate.
Understanding Your Credit Report: How to Read Credit Report Codes
One of the most daunting aspects of reading a credit report is understanding the codes the bureaus use. TransUnion provides a handy download that explains these codes. Here are some of the more important codes to understand:
- An account with C next to it is closed.
- An account with F next to it indicates a negative issue, including foreclosure or collections.
- Payment status codes indicate whether you’ve remained current or not. A status of 01 indicates that you paid as agreed, for example. Some other codes include:
- 02 for being 30-59 days past due
- 03 for being 60-89 days past due
- 04 for being 90-119 days past due
- 05 for being 120+ days past due
- Payment status codes can also reflect the status of the account. For example, 09 indicates that the account was charged off to bad debt as uncollectible, and 08 indicates that the security on the loan (such as a car) was repossessed.
Steps to Take After You Read Your Credit Report
Once you puzzle out the details on your credit report, you may want to take some action. Here are a few of the most common steps people take after they read their credit reports.
1. Dispute inaccurate information.
According to the Federal Trade Commission, something like 20% of all adults have at least one error on their credit reports. So if you find a mistake on yours, you’re not alone.
Under the Fair Credit Reporting Act, you have a right to a fair and accurate credit report file. The FCRA provides a way for you to dispute information you think is wrong. Here’s how:
- Gather documents that show why the information is wrong, if applicable.
- Write a letter to the credit bureau in question. Identify the inaccurate information, state briefly why you believe it’s wrong and state what you want them to do about it — either remove it or correct it.
- Mail the letter along with any documentation to the credit bureau.
- Include a copy of your credit report with the error circled for good measure.
The credit bureau must launch an investigation and get back to you with its findings within around 45 total days.
2. Take steps to improve your credit.
If everything on your report is accurate and you have a few issues that are bringing your credit score lower than you like, you can still take some steps to improve your credit. Here are a few options:
- Start paying all your payments on time to improve your credit history.
- Pay down high credit card balances or other revolving credit accounts to improve your credit utilization rate.
- Limit hard inquiries as much as possible to keep from bringing your score down more.
- Consider opening a credit-building loan account or new credit card account if you don’t have a good credit mix. The credit scoring models take into account whether you have shown that you can responsibly manage both installment accounts (like auto loans or personal loans) and revolving accounts (such as credit cards).
It’s important to note that improving your credit in this way is definitely a long-term proposition. While paying down debt might help boost your score fairly quickly, overall it takes time to build good credit.
3. Apply for a loan.
Once you know where your credit stands, you may decide to apply for a loan. You don’t need good or excellent credit to get a loan, but understanding your credit definitely helps you research loans and find ones that might work best for you.
Whether you have decent credit and just need some fast cash via a personal loan or you have lackluster credit and want a loan to help you work to improve it, Wise Loan may be able to help.
Find out more about our loan options and apply for a loan today. The process only takes about 5 minutes, and we guarantee that it’s much easier than learning to understand your credit report. We may even be able to offer you a loan without checking your credit.