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How do you read a credit report?

A credit report shows you a snapshot of your credit history.  Before we can discuss how to improve your credit scores, you need to understand how to read and understand a credit report. Once that’s settled, in future posts we’ll go into more detail on how to assess your credit and improve the dreaded low credit score.

What information is used to assess your credit score?

Credit bureaus will collect information from public records and companies from which you have taken out loans or credit. With the information provided, they will create a credit report that assesses all current and past loans and credit, and your payment history on all of them. There are five key items used to calculate your credit score, and some have more weight than others:

  1. Payment history:  timely payments mean a higher score. The score is lowered for late payments, over-limit accounts and bankruptcies.
  2. Amount you owe: this is your debt-to-credit ratio. A high credit card balance would lower your credit score.
  3. Length of credit history: how long you’ve been using credit and how well or poorly you’ve managed your finances since then.
  4. New credit accounts and inquires: this includes new accounts opened recently and inquiries to companies you’ve applied to for credit.
  5. Types of credit in use: this includes all your credit accounts (credit cards, mortgages, loans, etc)

Credit score breakdown

Where can you get a credit report?

There are few major agencies that provide credit reports in the US and UK. In the US, this includes only 3: Experian, TransUnion and Equifax. For the UK, we recommend the Credit Expert Report from Experian over other options. They provide a more concise and easy to read credit report. You can view an example of a report here.

Credit History form

Understanding the setup

A credit report is divided into four sections: your identifying information, credit history, public records and inquiries. The first section is very self-explanatory: it’s your personal identifying information such as your name, ID or social security number, phone number and so on. Make sure all the information is correct before proceeding to the next section.

The next section is very important: your credit history. Here, you will usually see everything organized in chart form. The information included here will be:

  • the name of the creditor and account number
  • the kind of credit (i.e. mortgage, car loan, store credit card)
  • whether the account is in your name alone or with someone else
  • amount of the loan or credit
  • how much you still owe
  • fixed monthly payments
  • status of the account (inactive, open closed, fully paid, etc)
  • how well you paid the account

Most credit reports will show a summary in chart form of all the above information as well.

The third section, public records, will hold information like bankruptcies, judgments, tax liens, court records and at times, overdue child support.  Only severe financial issues will appear in this section and they can easily trash your credit.

The final section is inquiries. It will list everyone who has asked to see your credit report within the last two years, including you. Only “hard” inquiries are shown to lenders, meaning that they will only see past inquiries in which you filed out a credit application. Soft inquires will only be shown only to you. These include any companies that wanted to pre-screen you for credit offers, potential employers or current creditors.

Understanding the score

A good credit score depends on the scoring system used by your lender or credit agency. As it usually goes with a credit score, the higher the number, the better your score. Depending on your score, a lender may be willing to grant you credit including auto loans, mortgages, and even credit  cards. If you use a credit reporting agency, you’re likely to be within these numbers:

  • Less than 600: Lower than average credit score. The lower, the worse your score.
  • 600-750: average rating. Most credit scores fall in this bracket.
  • 700+: good credit management

credit rating

 

How’s your credit score? Do you need to improve it?

About Ronnie E.

Ronnie is the frugal Latina of the group. Hailing from the beautiful Andes Mountains in Bolivia, she lives and breathes frugality. She loves to figure out how to spend less money and takes on the challenge of finding great deals and cheaper options every day.

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  • Robin Rue

    Wow, thank you – this article was incredibly helpful. My husband and I just re-financed and as part of the process we had our credit reports pulled. Now I can look at it and actually understand it 🙂

  • Thank you for this post. I was actually having a hard time with these crazy reports. thank you for the help.

  • It’s so important to keep track of our credit reports and to be able to read them. It makes a big difference in maintaining your credit score.

  • Amanda

    This is so true! Having good credit is so vital to financial success.

  • mena & taty

    We should all make a habit of getting and reviewing our credit scores and reports thanks for the reminder

  • Good info! As someone who’s never even had a credit card, I go back and forth about the merits of building credit.

  • Thank you so much for the explanation. I order my credit report but looking at it can get confusing. I now know what to look for. Thank you.

  • Wow thank you so much – what a great resource I have to admit credit reports go right over my head 🙂 x

  • Thanks for the reminder. I have been working hard to rebuild my credit and this gave me a nudge to check it out soon.

  • Terry

    Thanks for all the great info. I thank goodness have good credit because of my Hubs. I had no idea what the score meant so thanks for letting me know.

  • Jessica J.

    Great article, Ronnie! I recently discovered that ALL your accounts are on your credit report, including joint accounts – like you said in the post. Important info for newlyweds … 🙂

  • JadeLouise Designs

    We’ve been a little mindful of our credit score for a few years now. Mostly we are just trying to keep it high cause we are hoping to get a home loan soon; so having a good credit score will really impact our chances for that.

  • Pam W

    We recently bought a car and the salesman asked us, “How did you get such a good credit rating?” lol It is important to know how to read these!

  • Jennifer Williams

    I did not think about mine until I went to buy my first house many years ago. That is when I learned my id had been stolen and it was a nightmare to fix everything. I lost the house I wanted but did at least get everything back on track and the person was caught. Always check your report.

  • Mine is pretty good. I try not to have any debt (besides my car note). I believe in checking your credit at least twice a year. Hubby had items on his that he knew nothing about. It took forever to get it taken care of.

  • Annie Wong

    My credit score has been good & I’ve only had my credit card for just under 2 years, yay! I try my best to manage my finances well 🙂

  • PamIW

    Thanks for this info. This is really good info for younger people to know. We belong to Lifelock and are able to get our credit score free through them whenever we need to. Very thankful that we have good credit.

  • Chrishelle Ebner

    Thanks for the tips. Thank goodness my mom is a banker and helps me with my financial issues. I am clueless, but now I will be able to understand a little bit more when my mom is explaining my credit report.

  • Liz @ A Nut in a Nutshell

    My credit scores are really high, and it’s really important to me to make sure they stay that way. 🙂

  • ashj3nt

    Thankfully for me my husband watches these things very closely. These are some great tips. Thank you for laying it out there.. I understand a little more now!

  • amanda

    i haven’t checked mine in a while… i probably should. i had a protection plan for a while.

  • Melanie Roberts

    great post and thanks for the info… need to check mine again, try to do that every few months… thanks for sharing

  • aryia

    Thanks for the better understanding of what the credit score is. I need to check mine.

  • Fan R

    I like your post about credit report as it shows everything in order and how it works. I usually do not check mine since my Financial Rep keeps saying I have the best score he ever saw.

    Fan R @TeddyOutReady