How to Read a Consumer Credit Report

A good credit rating can impact your finances in more ways than one, so it’s vital that you know how to read your consumer credit report. When attempting to qualify for loans, credit cards, or lines of credit, lenders take your credit score into account. Your score determines in part whether you’re approved for new credit and what interest rate you'll receive on money that you borrow.

How to Read Your Consumer Credit Report

At first glance, a credit report can seem like a jumble of numbers, but once you know what you’re looking at, it becomes easier to decipher. Generally, credit reports are broken down into five main sections.

Personal Information

Your credit history is linked to your Social Security number. Your name, date of birth, and current address will also be listed on your credit report. Your previous addresses, employment history, and any other names you’ve gone by, such as a maiden name, would also be included.

Credit Accounts

This is likely the largest section of your credit report, depending on how long you’ve been using credit. Here you’ll find details for all your current and past credit accounts, including the type of account, the creditor’s name, current balance, total credit limit, payment history, and the date the account was opened and closed.

Collection Items

When a debt goes unpaid, your creditor can turn it over to a collection agency. Once an account goes to collections, it can appear on your credit report. Collection items can be very damaging to your score.

Public Records

If a debt collector sues you for an unpaid debt and wins, the court will enter a judgment against you. Judgments can appear on your credit report, as can any related actions to collect what’s owed, such as a wage garnishment. Foreclosures and bankruptcies would also be included in the public records section.

Inquiries

When you apply for new credit, the lender may check your credit report and score. This is called a hard inquiry. Each new inquiry for credit will land on your credit report. The exception to the rule is inquiries that don’t involve a check of your credit report, including any time you check your own report or score.

Who Generates Credit Scores?

Credit scores don’t just appear out of thin air. They’re calculated using the information in your credit report. The FICO score, originally developed by the Fair Isaac Corporation, is the most popular with lenders. This score ranges from 300 to 850, with 850 considered the “perfect” score. The VantageScore is another credit-scoring model.

While the FICO and VantageScore models use different algorithms to generate credit scores, they both rely on credit reporting agencies for information. Understanding how to read your credit report is the first step to better credit health.

Your Credit Report and Credit Scoring

Knowing how to read the information in your credit report is important for several reasons. First, it can give you a better understanding of what affects your score, positively or negatively. FICO scores, for example, are based on five specific factors:

• Payment History
• Credit Utilization or Amounts Owed
• Length of Credit History
• Credit Mix
• New Credit

Each factor carries a different weight in terms of how your scores are calculated. Out of the five, payment history is the most important. On-time payments can strengthen your score, while late or missed payments can cause it to drop substantially.

The VantageScore model uses a similar set of factors, including:

• Payment History
• Age of Credit Accounts
• Utilization
• Total Balances/Debt
• New Credit
• Available Credit

Once you know what’s in your report, it can be easier to recognize behaviors or trends that could be helping or hurting your score. From there, you can adopt credit habits that could help you build better credit. If you notice that you owe high balances on several of your credit cards, for example, paying down some of your debt may add points to your score.

Reviewing your credit report regularly is important for detecting errors or spotting potential signs of identity theft. New accounts opened that you don’t recognize could signal that someone is using your personal information to obtain credit. And if you see that your payments aren’t being reported correctly, you have the right to dispute those errors under the Fair Credit Reporting Act.

To initiate a dispute, contact the credit bureau reporting the information online or by mail. You’ll need to give it your name, account number, and the nature of the information you’re disputing. The credit bureau is required to investigate, usually within 30 days. If your dispute is valid, the error must be removed or corrected. If not, the credit bureau must let you know in writing why the information won’t be changed.

The Bottom Line

Credit reports can seem complicated, but they can be a valuable tool for improving your credit rating. Remember, however, that negative items—including past-due payments and collections—can stay on your credit report for up to seven years; bankruptcies can remain on for up to 10 years. Checking your report regularly can help you build a stronger credit history, which can work in your favor down the line as you seek out new loans or lines of credit.