Credit Basics
How to read your credit report
Bankrate.com
July 8, 2004
Charge-offs, inquiries, R1s -- what's it all mean? Here's how
to understand this increasingly crucial document.
The lender told you to get a copy of your credit report as part
of the prequalifying 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. "Looking at one is a useless endeavor; you need to look at all
three," says Howard Dvorkin, president 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."
Other information might include your current and previous addresses, your date of
birth, telephone numbers, driver's license numbers, your employer and your spouse's
name.
The next section is your credit history. Sometimes, the individual accounts are
called trade lines.
Each account will include the name of the creditor and the account number, which
may be scrambled for security purposes. You may have more than one account from
a creditor. Many creditors have more than one kind of account, or if you move, they
transfer your account to a new location and assign a new number. The entry will
also include:
- When you opened the account
- The kind of credit (installment, such as a mortgage or car loan,
or revolving, such as a department store credit card)
Whether the account is in your name alone or with another person
- Total amount of the loan,
high credit limit or highest balance on the card
- How much you still owe
- Fixed monthly payments or minimum monthly amount
- Status of the account (open, inactive, closed, paid, etc.)
- How well you've paid the account
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