Credit Basics
How to read and understand your credit report
Monday, November 14, 2005
Pat Curry
The lender told you to get a copy of your credit report as part of the pre-qualifying process for a mortgage. The purpose, he said, was to see how your credit looked and to clear up any errors that might be in the report.
But now that you've got it, there are an awful lot of numbers, abbreviations and
terms you've never seen before. Trade lines, charge-offs, account review inquiries
-- how do you read this thing?
First off, there are three major credit-reporting agencies in the United States:
Experian, TransUnion and Equifax.
Order a copy of your credit report and review it for any errors. Costs vary from
state to state, but in most states, it costs $9 to get your report. TransUnion,
Equifax and Experian all allow you to review your report online.
Plus thanks to a new federal law you'll now be entitled to one free credit report
from each of these
credit reporting agencies per year. Consumers in western states
became eligible to request their free annual credit report Dec. 1, but if you live
on the East coast you'll have to wait until Sept. 1, 2005. To find out when you
become eligible to receive a free credit report, check out Bankrate's map.
The reports will not automatically be sent out. Each consumer must request their
reports one of these three ways. Go to www.annualcreditreport.com, which is the
only authorized source for consumers to access their annual credit report online
for free. Or, call 877-322-8228. Lastly, you may complete the form on the back of
the Annual Credit Report Request brochure, and mail it to: Annual Credit Report
Request Service, P.O. Box 105281, Atlanta, GA, 30348-5281. One more caveat: you'll
be able to order all three credit reports at one time, or at
"Looking at one is a useless endeavor; you need to look at all three," says Howard Dvorkin, founder of Consolidated Credit Counseling Services in Fort Lauderdale, Fla. "People tend to pull one and think everything is the same on all of them. That's not normally the case."
The reports will have different information because it's a voluntary system, and creditors subscribe to whichever agency they want -- if any at all.
Maxine Sweet, vice president of consumer education at Experian, stresses the importance
of ordering the report directly from the credit bureau instead of asking a buddy
who works at a bank to pull one for you. Those are written for people who work in
the credit industry. The one you get from the credit bureau is designed for consumers.
"The information is the same, but it's much more consumer friendly," she says.
Well, not quite the same. The report sent to a lender will list the credit bureau
member numbers of your creditors and it won't have the complete list of every company
that's pulled your credit information for promotional purposes, like pre-approved
credit
card offers.
"If you compared the two reports side by side, the consumer one will have a couple
more pages of information," says John Ulzheimer, client support specialist for credit
bureau products at Fair, Isaac and Co. Fair, Isaac is the creator of the FICO score,
the widely used credit scoring model that is used to determine a person's credit
risk.
Anatomy of a credit report
A credit report is basically divided into four sections: identifying information,
credit history, public records, and inquiries.
Identifying information is just that -- information to identify you. Look at it
closely to make sure it's accurate. It's not unusual, Sweet says, for there to be
two or three spellings of your name or more than one Social Security number. That's
usually because someone reported the information that way. The variations will stay
on your credit report; "If it's reported wrong, we leave it because it might mess up the link. Don't be concerned about variations."
