Understanding your credit report
Your credit report is a history of your credit behavior, or how responsibly you manage your money and your debt.
This history — complied by credit reporting agencies that receive your financial information from banks, lenders, and other various creditors — is used to generate your credit score. Lenders and creditors then use this report, and the credit score associated with it, to determine if they will make a new loan to you, give you a credit card, or increase your limit on existing credit cards. Your credit history also affects the interest rate you receive.
To help you become more familiar with the critical elements of your credit report, check out the five major sections of a typical credit report. Learn what’s included, why it’s important to check your report, what to do in cases of inaccurate information, how to decipher your credit score, and much more.
Here is where the basic identity information is contained. Items such as your home addresses, social security number, date of birth, and the names of employers with the last year employed are the highlights of this section. This section is critical because if any information in this section is incorrect, it could be the result of an attempt to steal your personal data or identity. Reporting any inaccuracies in this section is crucial. Doing this helps protect you against identity theft.
The information shown here is in many cases an explanation of the existence of a negative item that is on your credit report placed there by the credit agency. Lenders will view these statements carefully in evaluating your credit report. These statements may be removed, if possible, by contacting the individual credit agency responsible for the report.
Public Record Information
Legal notices and issues involving finances are the primary content of this section. Federal, state, and local court judgments will be posted here such as bankruptcies, liens, law suits, foreclosures, and past due items as they are legally recorded.
Details of this section include, but are not limited to; the court that has jurisdiction over the case, the type of financial record, the case identification number, whether the status of the case is currently open or closed, the date the case was opened, and if applicable, the date the case was resolved. In the case of a bankruptcy, the record will show the amount of personal liability as determined by the bankruptcy court (total liability), the amount declared by the court to be excluded from personal liability (the exempt amount) and total assets (the valuation of the total personal assets that the court has decided can be used to pay down the total liability).
This will be the most detailed and yet important information in understanding both your credit report and the resultant credit score. Often referred to as a FICO score, it is a number grade ranging from 300 on the low end to 850 – a perfect score – on the high end. FICO is an acronym for Fair Isaac Corporation, the company responsible for the invention of the credit score as we know it today.
The FICO score is a weighted value based on five related financial categories
History of payment – This represents 35% of your credit score. This is simply a history of your payments made to your creditors according to the terms of the agreement. Late payments, the number of past due accounts, the length of time each account was past due, accounts that have been referred for collection, and bankruptcies all will be shown here. Your ability to pay your creditors on time consistently will be reflected in a higher credit score. An inability to do the same will negatively impact your score.
Balance and Available Credit – This represents 30% of your credit score. How much you owe is important, but the FICO score also takes into consideration the ratio of outstanding debt to the amount of available credit. The simplest example to illustrate this ratio is comparing the amount of available credit you have on all your credit cards to the total maximum limit on the same cards.
Length of Credit History – This represents 15% of your credit score. A long history of responsible credit behavior works in your favor. A bare minimum of six months of an active credit history is generally required before a credit score can be calculated, though nine months is usually preferred by lenders.
The Number of Accounts and the Type of Credit Held – This represents 10% of your credit score. Basically, the more credit accounts that are open in your name the more opportunities you have to accumulate debt, becoming potentially incapable of paying down that debt according to the terms of the agreement. For this reason, too many accounts will adversely affect your overall credit score.
The types of credit held are an important factor that can work for and against your credit score. Possessing a variety of debt, such as credit cards and installment debt, shows the creditors you ability to handle a variety of debt responsibly. On the other hand, having all bank credit cards may negatively affect your score.
New Credit – This represents 10% of your credit score. The frequency and timeliness of applying for new credit can lower your credit score. Using a calendar year as a measurement, if there are many inquiries into your credit report over that period of time, it is generally a red flag and will reduce your credit score. Combined with other factors, such as making late payments on existing accounts, sends a signal that you may be in serious financial trouble.
The detailed information of each item displayed on the credit report:
Company name – person or company issuing the credit, Account number – which may be your credit card number, Condition – whether the account is open or closed Type – bank credit, installment
Responsible party – individual or joint responsibility, Opened – date when the account was opened, Limit – maximum amount of extended credit, Last reported – date the lender last reported the information Reported balance – amount owed
Recent payment – date of the most recent payment made by the borrower Past due – amount and date past due (if any) and the number of days past due
Account history information
- Company name – person or company issuing the credit
- Account number – which may be your credit card number, for example
- Condition – whether the account is open or closed
- Type – Type of account (common types include mortgage, installment, and revolving)
- Responsibility – individual or joint responsibility
- Opened – date which the account was opened
- Limit – maximum amount of extended credit
- Last reported – Date the credit bureaus last received information from creditors
- Reported balance – Amount owed (at time last reported)
- Recent payment – reported date of the most recent payment made by the borrower
- Past due – Amount of unpaid balance after payment due date and number of days past due (at time last reported)
This section of the credit report lists the name and address of the creditors that ran your credit report and date of credit inquiries. There are two types of credit inquires:
- Hard inquiries The most important of these two types is the hard inquiry, as too many applications for new credit or applying for a number of loans within a short period of time will adversely affect your credit score.
- Soft inquiries If you have ever received an offer based on being “pre-approved” it is this kind of inquiry that has been performed. Soft inquires do not have any impact on credit scores.
See Two easy ways to protect your privacy and stop companies from sending you pre-approved credit applications.
Accounts that are included on a credit report
Types of accounts reported on a credit report include revolving charge accounts, real estate, and installment debt. Revolving charge accounts are typically bank and store credit cards. Real estate accounts are commonly seen here as home mortgage loans. Installment accounts have a fixed, regular, often monthly payment schedule.
There are two types of accounts: individual and joint, determining whether responsibility of the debt is held only by one person or shared by two or more people. In the case of a joint account, the information about the debt will appear on each individual’s credit report.
What if there is inaccurate information reporting on my credit report?
In the event there is incorrect information contained in your credit report, obtain a report from the three major credit reporting agencies and do a side-by-side comparison to look for similar errors and corroborating information. It is your responsibility to contact each individual agency and report the errors. In most cases, you can request an investigation of specific errors, but this must be done within 30 days after you receive a copy of the credit report. Request the errors to be corrected. This process can be done by mail, phone, or online.
For further information and specific details, contact the credit bureau in question.
To learn more about the benefits of a good credit rating, the troubles a bad score can cause, and ways to improve your credit, visit The ins and outs of your credit score.