How to Read a Credit Report: A Complete Beginners Guide

Credit
Updated: 21st Nov 2020
Written by Kim Pinnelli
Share this article
What is ABT Synchrony On My Credit Report?
How to Remove Southwest Credit Systems From Your Credit Report (Proven Ways)
Credit
November 21, 2020
Written by Kim Pinnelli

Disclaimer: This post contains references to products from one or more of our advertisers. We may receive compensation (at no cost to you) when you click on links to those products. Read our Disclaimer Policy for more information.

Do credit reports scare you? You aren’t alone.

Most people avoid looking at their credit report because it is overwhelming, not to mention the credit score that glares at you judging your habits.

Don’t avoid it. Read it and get to know it. The more you know about your credit report and credit score, the better financial decisions you’ll make.

Check out my guide on how to read a credit report, and you’ll be a pro before you know it.

What is a Credit Report?

A credit report is a compilation of the information your creditors report to the credit bureaus. Each consumer has three credit reports, one each from:

  • TransUnion
  • Equifax
  • Experian

The credit bureaus report the information provided. They don’t ‘judge’ your credit and the credit bureaus don’t share information. What’s on one report may or may not be on another, especially mistakes.

The tradelines, payment history, account balances, and credit age reported on your credit report make up your individual credit score.

Each credit bureau has an algorithm they use to calculate your credit score. Lenders use your credit report and credit score when determining if you’re a reasonable credit risk.

How to Get a FREE Copy of Your Credit Report

Every consumer has free annual access to their credit report. You get one from each of the three bureaus each year. Visit www.annualcreditreport.com to get your free reports.

*Until April 2021 (so far) because of the pandemic, each credit bureau is offering free weekly credit report updates.

How to Read Your Credit Report:

Reading a credit report can be overwhelming. There’s a lot of information on there, and to the layman, it may look like a lot of gibberish. I’ll break down each section to make it easier.

What Information Appears on Your Credit Report?

#1. Personal Identifying Information (PII)

This section contains all your private information. Go over it carefully. Make sure names, addresses (current and past), Social Security numbers, birthdates, and even suffixes are correct. Anything that isn’t correct, report to the bureau reporting the incorrect information and provide proof of what is incorrect.

#2. Credit Inquiries

Credit inquiries are important even though they seem like another piece of information. Credit bureaus use the information to determine your riskiness.

A few inquiries aren’t a big deal, but too many, and they could lower your credit score significantly. Lenders use credit inquiries to determine your financial stability. If you have a ‘ton’ of inquiries, it’s a sign that you’re desperate for money.

Credit inquiries are also an indication of identity theft. If you notice inquiries you didn’t authorize, it could be a sign of identity theft.

Learn: Hard vs Soft Inquiries

#3. Credit Accounts

This is the ‘meat’ of your credit report. Any account you have will report here. You’ll see current and past accounts. Each account, no matter the type, should have the following information:

  • Creditor information
  • Account number
  • Account type
  • Account opening date
  • Account status (open, closed, paid as agreed, in collection, payment arrangement, settled for less than the full amount, etc.)
  • The original and current balance
  • Payment history

In the credit accounts, focus closely on the account number, opening date, status, balance, and payment history. Your payment history makes up 35% of your credit score (the largest amount).

If there’s an error, dispute it with the credit bureau (more on that below).

Even little errors, like the wrong account status or wrong balance amount, could hurt you. Dispute any issues or errors you find.

#4. Public Records

This may show at the bottom of your credit report, but it’s important. If you have any foreclosures, bankruptcies, liens, or civil judgments, they’ll show up on the credit report here.

First, make sure they are legit. Did you know about them? Do they belong to you? If they are yours, work with the lender to take care of them. If they aren’t yours, dispute the errors.

Dispute Errors on Your Credit Report

Dispute any errors, and I mean any that you find. Don’t think ‘oh it’s no big deal.’ Any error could hurt you.

Disputing errors isn’t as hard as it sounds. Once you find the errors, write a formal letter to the credit bureau. Write a separate letter for each error and to each credit bureau (if the error shows up on multiple reports).

It’s a good idea to follow up with the creditor too. Explain the error to them and provide any proof that you have. Ask them to fix the error in their records and to report the mistake to the credit bureaus.

This covers all of your bases and increases the chance that the credit bureau removes the errors.

Keep in mind, you can’t dispute ‘errors’ that are legit. For example, if you paid a bill late, you can’t dispute the 1×30 on your credit report.

If you paid it late your credit score will drop, but not forever. With time and good credit habits moving forward, you can fix your score.

To assist, we wrote an awesome 4-part series that highlights how to dispute an error on your credit report.

What Does “Open Account” Mean on My Credit Report?

An open account is any account you opened, paid off, and didn’t close. An open account isn’t bad, and you probably shouldn’t close any accounts, or it shortens your credit length. Typical examples are credit cards, especially store credit cards.

If you opened one to get the discount and/or make a large purchase, but you’ve since paid it off, the account may have sat for years with a $0 balance, and that’s okay.

Does My Credit Report Have My Credit Score?

Your free credit report will not have a credit score. It only shows your credit history. If you want your credit score, try one of the following:

  • Check with your bank or credit union, they may offer a free credit score
  • Your credit card company may provide free credit card access
  • Click Here to get your Experian Credit Score.
  • Sign up for Credit Karma or Credit Sesame – both are free

What Does “U” Stand for on A Credit Report?

‘U’ stands for unclassified on your credit report. This happens for many reasons, including:

  • An opened account that’s too new to report anything
  • The creditor sent it to collections
  • The account is past due

A ‘U’ status doesn’t affect your credit score, but what it updates with probably will affect it, so stay tuned.

Who Can See My Credit Report?

Most people need your permission to pull your credit report. You sign disclosures when you apply for new credit, allowing them to pull your report.

Some institutions, however, can do a ‘soft credit pull.’ This happens when a financial institution wants to pre-approve you for a loan or credit card, an insurance company wants to check your credit, or you pull your own credit.

Why Is My Credit Report Important?

Your credit report tells lenders, employers, and insurance companies everything they need to know about your financial responsibility.

A poor credit history signifies that you’re a high risk of default. A good credit history shows that you’re financially responsible. If you fall somewhere in between, you’re average, and that’s a good thing.

You’ll use your credit report a lot. Lenders pull it every time you apply for new credit. New employers often check it to see your financial history. Insurance companies use it to determine your premiums. You’ll even use it to check for errors and dispute them.

Get in The Habit of Monitoring Your Credit

Check your credit often. If you don’t, check out our list of the best credit monitoring services.

Check your credit report for any errors made on your credit report. It affects your financial future. For example, if a lender reports your mortgage payment late for 30 days, that’s a big hit on your credit score. Plus, it looks bad to new lenders.

The longer incorrect information sits on your credit report, the more it hurts your credit score. Monitoring your credit often ensures you catch these issues right away.

Watch Out for Identity Theft

The more you check your credit reports, the faster you’ll catch identity theft or fraud. The earlier you catch issues, the less damage the thieves can do to your credit. It’s not easy to get out from under identity theft, so knowing it happened quickly is important.

If you see accounts you didn’t open, inquiries you didn’t make, or other errors on your report that you had nothing to do with, it’s a sign that someone stole your identity.

Related: Best Credit Repair Companies

Bottom Line: How to Read Your Credit Report

Take your credit report seriously. Don’t focus on your credit score as much as the information on your credit report.

Pull your free reports each year, dispute errors, and report any suspicious activity right away to avoid serious damage to your credit history and credit score.

More Credit Report Resources:

Kim Pinnelli
Kim Pinnelli
Kim is a personal finance expert with a Bachelor’s degree in Finance from the University of Illinois at Chicago. She has been freelance writing for 13 years for a number of large publications. Kim thoroughly enjoys helping people take charge of their personal finances.