Understanding Your Credit Health: How to Read a Credit Report

Your credit report is not just a key guide to your credit health, it’s a critical tool in determining how easy it will be for you to access any type of credit.

Your credit report is not just a key guide to your credit health, it’s a critical tool in determining how easy it will be for you to access any type of credit and how much interest you will pay on what you borrow.

In this blog we take a careful look at what a credit report is, the information it contains, and the impact it has on your financial life through your credit score. We also look at smart things you can do to improve your credit score including taking out a personal loan to pay off credit card debt. Read on to learn more. 

What is a credit report? 

A credit report is a record of how you handle debt and scheduled payments for services you use. Credit reports are maintained by three credit bureaus, Experian, TransUnion, and Equifax. These bureaus are responsible for tracking how well you stick to your commitment to repay money you owe on a loan, credit card, rental agreement, or monthly bills.

Loan lenders, landlords, service providers, and merchants will review your credit report to assess how likely you are to repay money you owe on time, based on your past behavior. They use the credit report information to decide whether or not they will offer you goods or services on credit. 

Why Your Credit Report Matters

Credit bureaus use the information in your credit report to generate a credit score. Anyone considering offering you a loan or any type of credit will check your credit score to determine how likely they are to be paid back on time and in full.

That means the details in your credit report can heavily influence your financial journey. Over the course of your life, your credit history will determine how easy it will be to rent an apartment, borrow money to pay for a college education, or buy a new car.

If you have a lower credit score, you will find it harder to access all types of credit, from home loans to credit cards. Not only will it be difficult simply to find lenders willing to take the risk of loaning you money, but you’ll likely be offered smaller loans and lower spending limits on any money you’re actually able to borrow.

Most importantly, your credit score is critical in determining the interest rates you’re offered on mortgages, loans, and credit cards. In terms of a mortgage loan, a difference of just one or two-tenths of a percent on your mortgage rate could mean you pay tens of thousands of dollars more over the life of a thirty-year home loan.

Key Elements of a Credit Report

You may be wondering exactly what information your credit report contains and how it is presented. Let’s take a closer look at what’s in our credit report and how it’s organized.

1. Personal Information

First up, your credit report contains a great deal of personal identifying information that links you individually to the information contained in the rest of the report. This includes:

  • Your name: Including your full name, maiden name, variations, or other names you may have used in the past.
  • Addresses: Your current and previous addresses.
  • Social security number: This is used to link specific credit activities to your report.
  • Date of birth: Provides additional identifying information.
  • Employment Information: Details of your current and past employers are listed, based on paycheck information.

Lenders accessing your full credit report can use this information to verify the personal information you have provided in credit or loan applications.

2. Account History

This part of your credit report includes information about your current and past credit accounts. It includes: 

  • Revolving Accounts, such as credit card accounts and lines of credit. This usually includes the balance and credit limit on each of these accounts as well as your payment history and whether the account remains open or is closed. Special note is made of any late or missed payments.
  • Installment Accounts, such as mortgages, car loans, and student loans. Again, your report shows the original loan amount, the remaining balance, the terms of the loan, and details of your payment history.

3. Credit Inquiries

Credit bureaus track how often your credit report information is sought by potential lenders and other parties. Two types of access are recognized:

  • Hard Inquiries: This is a formal inquiry by a lender in response to your formal application for credit. Hard inquiries may lower your credit score by a few points but are removed within two years. If lenders see too many applications for credit in a short period of time, they could view it as a potential sign of financial distress.
  • Soft Inquiries: This occurs when a lender, employer, or you check your credit score. Only your credit score is provided and the inquiry does not affect your score.

4. Public Records

Your credit report also includes details contained in public records (such as court filings) that may affect your financial standing. Typically this includes:

  • Bankruptcies
  • Foreclosures
  • Legal suits
  • Wage attachments or garnishments to retrieve money owed
  • Liens against your assets
  • Court judgments.

These details are considered very significant and typically remain on your credit report for seven to 10 years.

5. Collections

Credit bureaus take careful note of unpaid bills or bad loans that have been turned over to collection agencies due to non-payment. This section of the report includes details about the original creditor, the outstanding debt, and the current status of the account. 

Details about collections will remain on your account for up to seven years after you have settled the debt.

How To Read Your Credit Report

You have the right to access your credit report and correct or dispute any information with the relevant credit bureau. Here’s how to do it.

Step 1: Access Your Credit Report

You are legally entitled to one free copy of your credit report from each of the credit bureaus every year. You can access your free annual credit report here or you can contact each credit bureau directly. 

Step 2: Check Your Personal Information

Check that the personal information is correct including your name, date of birth, social security number, and all addresses.

Step 3: Check Your Credit Information

Go through your report line by line, checking that any listed credit accounts, inquiries, public records, and collections are true and accurate. 

Step 4: Report and Dispute Inaccurate Information

It’s important to correct any inaccurate information as soon as possible, especially if you are considering applying for a loan or credit in the near future. 

If you see any errors, you’ll need to use the dispute resolution process offered by each credit bureau to set the record straight. In some cases, you may need to contact a bank or merchant to ask them to correct inaccurate late payment information or where an account was erroneously sent to collections.

Step 5: Identify Areas for Improvements

Checking your credit report also allows you to pinpoint things that are lowering your credit score and identify opportunities to improve it. To do this, it’s important to understand exactly how information in your credit report affects your credit score. 

Credit bureaus usually use weighting systems developed by FICO, a data analytics company. FICO’s main scoring systems weights factors in your credit record as follows:

  • Payment history (35%):  SImply paying your bills on time accounts for more than a third of your credit score. This measurement includes your payment history as well as past loan defaults, repossessions, foreclosures, and accounts sent to collections.
  • Debt level (30%): This measure looks at how much you owe across all of your credit accounts. It looks specifically at how much of your available credit you are using (your credit utilization ratio) and the portion of your monthly income that is being used to pay down your debt (your debt-to-income ratio).
  • Credit history (15%): Lenders like to see an ability to handle credit over a long period of time. Your credit history looks at the age of your oldest account, the age of your youngest account, and the average age of all your open accounts.
  • New credit (10%): This score includes recent hard inquiries on your credit report as well as the date since you last opened a new account to evaluate both your need for credit and your ability to manage debt responsibly.
  • Credit mix (10%): Lenders also like to see evidence of your ability to manage different types of debt simultaneously, including credit cards and auto and mortgage loans.

Understanding this breakdown should help you prioritize areas for improvement that will have the maximum impact on your score. 

What To Look For In Your Credit Report

Understanding how your credit report affects your score allows you to look at your report through the eyes of potential lenders. Let’s take a look at some major lending red flags and what you can do about them.

  • Late or missed payments: Make sure you pay all accounts on time. Check with merchants if you think some payments may have been recorded incorrectly.
  • High credit utilization: Work to reduce your overall indebtedness as well as the amount of available credit you are using, especially on short-term, high-interest accounts like credit cards.
  • Short credit history: Keep credit accounts open, even if you do not need them. This will help to maximize your credit history and protect your credit mix.
  • Frequent Hard Inquiries: Try to be strategic when applying for new credit to avoid giving the impression you are borrowing irresponsibly. Limit hard inquiries, and if you are shopping for loans, try to group inquiries within a two-week period, which is considered a single “pull”.
  • Keep an Eye Out for Fraud: If you spot inaccurate personal information or come across accounts, inquiries, or public records you do not recognize—it’s possible you may have been a victim of identity theft or other forms of fraud. Report this immediately to all the credit bureaus as well as the affected merchants or financial institutions.

Sign Up For Credit Monitoring

You can protect your credit score by signing up for a credit monitoring service. This is provided directly by the three bureaus, and by many financial institutions and card issuers as part of their credit offerings.

A credit monitoring service will inform you of changes to your credit record including hard inquiries, account changes, collections referrals, and public filings in your name. If you did not authorize these, then it is likely your information is being misused.

The credit bureaus can also lock your credit record, which prevents hard inquiries from being conducted without your specific approval. The price of credit monitoring services is a small price to pay for protecting a valuable asset: your credit score.

Savvy Money is a free credit monitoring system provided for members of Foothill Credit Union. You have access to your entire credit report, can keep track of your credit score, monitor credit activity, and seek counsel from financial experts on how to improve your overall score.

Plus there aren’t any extra steps or new apps to download! Members simply need to sign up for digital banking and then opt-in to activate Savvy Money. They can then monitor and track their credit score remotely—anytime, anywhere.

How Foothill Credit Union Can Help

At Foothill Credit Union we recognize that out-of-control debts are a threat to your credit score and overall financial wellness. That’s why we offer our members access to affordable, flexible personal loans, ideal for debt consolidation.

Our Signature loans let you take control of your debt by paying off your higher-interest debt or credit card debt. Instead, you’ll get a single, predictable monthly payment and low rates.  With a Foothill CU Signature Loan you can:

  • >Borrow up to $100,000
  • Take up to 60 months to repay
  • Make easy automatic payments through online banking

Best of all, you’ll become part of a great community dedicated to “banking made better”. 

As a local financial cooperative, we succeed when our members thrive. That’s why we offer our members personalized service you won’t find at a commercial bank, and why we take the time to understand your unique financial goals and challenges so we can serve you better.

As a Foothill CU member, we know you’re there for us, so we are here for you with smart financial tools and great advice. Contact us today to learn more about our personal loans for debt consolidation, or click below to take the next step on your journey to financial wellness.

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