You probably know that credit reports are important, but you might not understand why they’re so critical to your financial life — or how and why you should get yours. Credit reports are compiled by the three nationwide credit bureaus — Experian, Equifax and TransUnion — who sell them to your potential creditors, lenders, landlords, employers and others. Those companies want a summary of your financial behavior before they give you a credit card, loan, apartment or job. Therefore, it’s important to know how to read a credit report so that you can build credit.
If you’re ever seen a credit report you might be mystified by all the names, numbers and symbols. Read on to learn how to decipher credit reports.
What Is a Credit Report?
Your credit report is a compilation of historical information that your creditors provide to the credit bureaus, such as how long you’ve had the account and whether you’ve paid on time. New information is regularly added and updated. The credit bureaus — also known as credit reporting agencies — aggregate all this data and reduce it to a snapshot of your financial status.
Don’t confuse credit reports with credit scores, however. Credit scores are created by taking the information from your credit reports and using it to create a three digit number for potential creditors to review quickly.
How to Read Your Credit Report
The only official source for free credit reports is AnnualCreditReport.com, which is authorized by the federal government. You’re entitled to one free copy from each of the three credit bureaus every twelve months. You can get them all once a year, or stagger them over the course of a year. The information is continually updated so reviewing them regularly is good financial housekeeping.
The following graphic shows how to read a credit report.
1. Personal Information
This brief section is critical because it identifies you as an individual. Every full name you’ve used — including suffixes such as “Jr.”, recent home addresses, date of birth, your Social Security number and current or past employers should be correctly listed.
You don’t want a mix-up with someone else’s identity because their bad credit could become yours.
2. Report Summary
It’s likely that your full credit report is lengthy. The summary shows your current accounts, balances and overdue amounts. It also totals the number of your closed accounts, inquiries and derogatory information.
3. Account Name
This section lists the name of each individual current or prior creditor. If you have two Visa credit cards with different account numbers, for instance, there should be two entries.
Check to make sure each account is yours. The account numbers are probably truncated so that only the last few digits show, but there should be enough detail to confirm whether it’s your account or not.
4. Credit Limit
The creditor might report what your highest balance for that account was, historically. Alternatively, it might show your current credit limit.
5. Account Status
This is the summary of the information at the time the data is aggregated. “Current” is favorable because it means you’re paying your bills on time. It’s problematic if your account is overdue, delinquent, referred to a collection agency or your mortgage is headed for foreclosure. You can also check your detailed account history in the “Historical Data and Account Status” section.
6. Past Due
If you’ve fallen behind on your payments, this section shows how long it’s been going on and how many times you’ve been delinquent. If you’re 30 days late — that’s the beginning of trouble. Sixty days late and you’re in bad shape; if you haven’t made a payment in 90 days your account is heading south fast. Late payments on your car loan secured by collateral could lead to the lender repossessing that vehicle.
7. Credit Bureau
The credit bureaus each compile the information for your Equifax, Experian and TransUnion credit reports. None of the reports will be identical because some creditors provide the information to one credit bureau, but not all three. This section shows which credit bureau provided the information.
8. Opening date
The length of your credit history is an important factor in determining your creditworthiness. Therefore, the opening date for each account determines the start of your history with that card and with your credit profile overall.
9. Monthly Payment
For installment accounts like auto or student loans, your fixed monthly payment amount is reported here. Sometimes the minimum payment amount for your revolving accounts — like credit cards — shows your current minimum obligation.
10. Last Reported Date
Here you’ll find the last date the account was updated by the creditor. The credit bureaus aren’t perfect; sometimes they don’t report all of the information. Perhaps you haven’t used your credit account for years so the credit bureau hasn’t updated your information.
11. Account Balance
The amount you owe for each account is shown here. For a mortgage or installment loan, it shows the remainder of your balance. The amount you owe on your revolving accounts changes monthly, so the account balance is the latest amount reported by the creditor.
12. Historical Status
This data forms the guts of your credit report and shows your history month-to-month for the last few years. The various account statuses are coded with numbers or letters. Often the information is color-coded, as well: For example, “Current” or “OK” might be green.
What to Do If You Spot Errors on Your Credit Report
It’s not enough to get your credit reports and review them in detail. You should keep an eye out for any critical errors and get them corrected immediately.
Each of the nationwide credit bureaus has a process to dispute credit report errors, such as accounts that don’t belong to you or payment status shown as delinquent when you’ve paid promptly. Check their websites to learn about the dispute process.
You’ve worked hard to build up your credit history, so check your credit reports regularly. Don’t let your credit become ruined because a creditor or credit bureau inadvertently made a mistake.