How to Read a Credit Bureau Report Effectively

Credit reports are so important for you to know exactly where you are standing in the financial world these days. That is why it is so important that you know how to read a credit bureau report effectively. There are several sections of it that it can seem overwhelming if you don’t know what you are looking at. Luckily, these reports are usually broken down for us. This is definitely not the funnest part of discovering where you are but its essential for growth later on. Join me for this journey of exploring our credit reports and all the vital information.

There are four main categories that are included within every credit report no matter where you get it from. Once something is on these reports, it takes a long time to get them removed without money and specialized help. View your reports regularly so that you know where you stand and which areas you need to grow in. Also, you need to make sure everything is 100% accurate because one little thing can completely alter your credit for years to come.

Personal Information

This section is pretty simplistic in nature. Basically it lists any names or phone numbers you may have used, along with any addresses or employer names. Pay close attention to this section believe it or not. Make note of anything in this section that you do not recognize. If you see information that you don’t recognize you should be very observant from this point forward. You don’t want someone to be applying for things with your information. Good news is if you catch them early, little if any damage can occur.

The first thing you will probably come across is a section with names listed. These should only be your own name but there may be several variations. The section listing your addresses will appear next. There may be many addresses here. There will be an address for every time you have entered it on any application. If it was different in any way that will make two addresses show up. When I did this for myself, I had an address in Fort Collins, Colorado. I have never even been to the state of Colorado. Something like this should send up red flags immediately. Next you are going to see a variety of things which may be different on each credit report or each individual persons report. Typically, you will see the year of birth, phone numbers, spouse or co-applicant, and employers. Phone numbers tend to be changed on a regular basis so if you see multiple of those, it is normal. I typically don’t recognize any of these besides my current phone number so its difficult for me to check on accuracy, but if you have an easier time than definitely check the numbers. Everything else should stay pretty constant and easy to check, at least for most people.

Accounts

You probably guessed it. Any account you have will go here or at least most of them. These stay on your record for seven years from the last date reported. There are some accounts that don’t go on here unless you don’t pay them. Some of these things would be medical or utility bills. In this section there are many important things to look at. There are seven that I consider to be especially important.

1. Account Name: This one is pretty self-explanatory but it tells the name of the account. Be sure to make a list of all of these that are on any of your reports. If there is an account name on there it is impacting your score one way or another so at some point should be analyzed and dealt with so it is creating a positive impact.
2. Account Type: Essentially there are two major types of accounts that you will see. Those two types are revolving and installment accounts. This may not be how they are listed on your reports but that is how they are divided up. A good thing to make note of is that you should have a mixture of each type of account to have the best of scores. Installment accounts include many types of accounts. Pretty much anything that is a loan where you have a set payment that is paid for a set amount of time. These types include auto, mortgage, student, home equity, and personal loans. Revolving accounts are essentially all your credit cards and lines of credit. Credit cards include the ones issued by banks, oil companies, or even retail stores.
3. Responsibility: This just tells who is responsible for ensuring that payments are made. For me, most of mine say individual, but I do have one that I opened with my ex-husband that still shows up on my report stating that the account is a joint account and then lists that persons name. Tip: Never do this if it can be helped; only do it in your own name. This gives you complete control and responsibility of it.
4. Date Opened: This section is self-explanatory but it is when the account was opened or sometimes when it started reporting. This gives you information of your account age. You need to aim for an account age of two years on all of your accounts. This looks good to lenders because it shows that you have the ability to open an account and are able to keep it open and in good standing for a significant period of time.
5. Status: Depending on who you used to view your credit report will change what you see in the area. Some places with include this information in the account type. Typically, the usual things that you will see are paid, current, derogatory, delinquent, late, or past due. You want every status to say paid or current. To others anything else is interpreted as this individual cannot pay their bills or manage their money adequately. You never want a lender to think this about you. All the accounts that say derogatory, delinquent, late, or past due you need to make note of so we can change those items.
6. Balance: This is how much you owe on each account. Somewhere you should see a summary of your credit report. That will show you a total balance for all your account. This number is your total debt. The average American adult has 90,460 in debt. At first this may seem like a lot, but if you think about it if you have an auto loan, a few credit cards, and a mortgage and you only owe 90k you are doing pretty well. The average home price in the United States is approximately $375,000 as of the second quarter of 2021. Add a vehicle or two and some high credit limit credit cards and you are getting around the half a million ballpark. Before a very large purchase you need to be trying to lower this total amount. Realistically you should always be working to lower the amount, because the lower it is the more income you can use to do charity, savings, or even invest in your retirement plan.
7. Payment and history: This will show you all your payments, list your monthly payment, and also show if you have paid late and exactly how late. Your goal is to also pay on time but unfortunately life happens and that doesn’t always happen. An important tidbit to remember is that a late payment on an account loses its impact every year especially after two years. Add all monthly payments together to view your total debt to income ratio.

Delinquencies or public records

These are two items on your reports that you need to especially make note of. They can be especially damaging to you credit score and overall credibility in the financial world. There are sets of rules for each of these types of records.

Delinquencies may sometimes also be referred to as collection accounts. These are essentially treated as regular accounts and you will see all the typical information but the important thing to remember is that each of these will put a significant ding in your credit scores. These accounts will stay on your report the same amount of time as a normal account, for a full seven years from the last date reported. This need to be recorded and paid off promptly. The sooner the better at least for your credit score.

Public records are a whole different ball game. These can include many things but the most common are bankruptcies, tax liens, monetary judgments, and sometimes even evictions. These will stay on your report for ten years. That is a long time so try your best to avoid these at all costs. Sometime avoidance is the best policy and if possible do that here.

Hard Inquiries

These are just every time someone pulls your credit report. There are soft and hard inquiries. Hard will impact your score and soft allows the person that pulls it to see information without impacting your score. Some of those applications for pre-approval are these soft pulls but when you apply for actual approval this gives you a hard inquiry.

Be careful about applying for large loans like a car or mortgage at multiple locations. This can easily give you 20+ inquiries in a days time. Dealerships especially tend to send off to multiple banks to find the best financing for you. When I bought my last car, I got eight inquiries just for one loan and I only went to the one dealership, they did all that pulling. These will remain on your reports for two years and the ideal amount to have been only two inquiries. When you pull your own credit to monitor that is only a soft pull.

What Does It All Mean?

All of these aspects are important individually but the combination of everything is what gives banks and other lenders the idea of whether you are really worth their investment. Whether it is a small or large purchase, having a great looking credit report can make all the difference. Hopefully, you have your credit report in front of you to view and you have made note of all important things.

Do you remember what those were? They were anything that you don’t recognize, your total debt, each account with balances and monthly payment, last late payment, any delinquencies with balances, and all hard inquiries with their removal dates. Keep track of all of these things on a regular basis. Please let me know if you have any questions or concerns in the comments section below.

Until next time… Patricia