Tuesday, July 31, 2012

How to Read Your Credit Report?

Bad Credit can be depressing. The key is to take action. Even if you are down to a 500 credit score, understanding your starting point is a good first step toward raising your score.

Start by getting a copy of your reports. Credit scores are based on the information on file with the big three credit bureaus: Equifax, Experian and TransUnion. Every year, every consumer is entitled to a free report from the government operated site AnnualCreditReport.com. After your first report, you can purchase additional ones directly from the bureaus and resellers like myFICO. You are not penalized for pulling your own credit report.

Once you get a report, you will see it has several sections. It starts with Identifying Information:

Name - includes all variations under which you are known ("Robert", "Bob", "Bobby"), your Maiden Name, if applicable, even misspellings of your name during credit checks. Make sure these are names that apply to you
Current Address
Previous Addresses
Social Security Number
Date of Birth
Telephone Numbers
Drivers License Numbers
Spouse's Name (if applicable)
Current Employer
Former Employers
The next section is often Public Records. This is where you will find local, state and federal court action listings related to your paying, or not paying, financial obligations. Best case, this section is blank. If you are in trouble with your debts, it may not be. These are the items to tackle first if they are inaccurate as they hurt your credit score the most. Here you will find:

Tax Liens
Wage Garnishments
Overdue Child Support
Now on to Collection Agency account information. Here you will find any accounts sent to collections in the past seven years. Usually a listing will contain:

Collection Agency's Name
Amount Owed
Contact Information
The big section is Credit Accounts or Credit History. This is where an agency will list all your current and past credit accounts that were reported to credit bureaus. Generally this covers the last 7 years. If you had a Nordstroms card where the "date of last activity" was in 1985, it has probably been dropped from the listing.

Each account listed will contain the following information:

Creditor (aka lender, credit card company, etc)
Account number
Date of account opening
Name(s) of account holders
Total amount of loan or the highest balanced ever on a card
Remaining balance
Any set monthly payments like for a mortgage
Any minimum monthly payments like for a credit card
How well you paid - two part code
So what is this code? It has two parts: whether it is I for installment or R for revolving credit. Mortgages are installment loans and credit cards are revolving credit. It's better to have more I debt than R debt for a credit score, but how you pay it off it more important than both. Some credit bureaus use M for mortgages instead of I. The second component is a number between 1 and 9. Having a 1 is best and 9 the worst. Some bureaus put a C on accounts that are current which is positive like getting a 1.

The final section is inquiries; these reflect who has requested to see your report. There are two types: hard and soft. Hard inquiries are ones you initiate by applying for loans, credit cards, auto financing, etc. Soft inquiries come from current creditors monitoring your account and companies who want to send out pre-qualified offers to individuals. Here you are looking both for inaccurate information and super high numbers of hard inquiries. If there are hard inquiries that you didn't initiate, it could be a red flag someone is trying to use your identity.

The credit industry knows there are mistakes, misinformation, and errors in these reports. Each credit bureau has a process for making corrections. You will have to contact them and provide documentation using credit dispute letters. These are simple to write. Provide copies of supporting evidence of your claims. Keep copies of everything for yourself.

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