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How to Understand Your Credit Report
Money SmartsNovember 6, 2024
Your credit report is your financial secret weapon.
Your credit history provides valuable insight into your financial health and opportunities for improvement. And that knowledge helps you make informed decisions about your money.
Credit reports contain a wealth of information that can be initially overwhelming. But we’re here to walk you step by step through that document. Read on to learn how to understand your credit report and use it to guide your financial journey.
Why Your Credit Report Matters
Your credit report is a detailed history of your debts and how well you’ve managed them. A great history shows responsible use of credit—on-time payments, low usage of available credit, years of positive records, and more.
Better-than-average credit makes you an attractive applicant to lenders. So you’re more likely to be approved for loans, credit cards, and lines of credit and receive competitive terms.
But a solid credit history is vital for more than just financing. People with good credit typically see lower rates for home and auto insurance. And they’re more likely to receive approval when renting a property, setting up utility accounts, and even seeking some jobs.
How to Read a Credit Report
Wondering how to understand your credit report? Let’s examine each section to explore what’s in your history.
Summary
Some reports include a high-level synopsis of your credit history. This section may include a tally of each account type you possess, your total balances, credit limits, accounts in collections, and more.
Personal Information
This section features variations of your name, including maiden names, names with a middle initial, etc. You’ll also see your Social Security number, date of birth, current and past addresses, phone numbers, employers, and any existing security alerts or credit freezes you’ve placed on your report.
Accounts
Your report includes a list of all open debts, plus accounts closed within the last ten years. Here, you’ll see loans, credit cards, lines of credit, mortgages, student loans, and more.
Each account will feature details of that debt—account number, type of account, open date, outstanding balance, loan terms, etc.
Additionally, you’ll observe detailed records of your payment history for each account. Those data show payment dates, payment amounts, whether those payments were on time, and how delayed any late payments were. You’ll also find notes about foreclosures, collections, repossessions, bankruptcies, and more.
Public Records and Collections
This section of your report itemizes public records related to your finances—typically monetary judgments against you, tax liens, and bankruptcies. Your report may also include collections against you and bankruptcies you’ve filed.
Hard Inquiries and Soft Inquiries
Your report lists all hard and soft credit inquiries in your name.
You trigger a hard inquiry when you authorize a bank, lender, landlord, etc. to run your credit. These requests typically stay on your report for two years. Too many hard inquiries can negatively impact your credit history.
Soft inquiries have no impact on your history. These requests do not require your permission. You may see them appear when you check your own credit, when businesses review your existing accounts, or when a company wants to make you a promotional offer for credit.
Disclosures and Contact Info
Here, you’ll find contact information for the reporting credit agency. You may also see information about your credit report rights and the process for disputing report data.
What’s Not on Your Credit Report
While your credit report includes plenty of detail about your finances, it doesn’t provide these pieces of information:
- Your credit score: You can find it for free via other sources
- Non-credit financial information: Bank account balances, income, purchase history, tax records, etc.
- Most personal information: Gender, race, marital status, religion, education, occupation, political affiliation, etc.
- Non-financial public records: Criminal history and civil judgments
- Old credit information: Data going back more than seven or ten years
Check Your Credit Report Annually
Your credit report matters. So set a reminder to review yours at least once a year.
Keep in mind that you typically have three credit reports—one from each of the major credit bureaus (Equifax, Experian, and TransUnion). A government-authorized website lets you access your reports for free once a year.
When you do, confirm the validity of the information. Mistakes could be simple errors or signs of identity theft. Each report provides details on how to dispute information you believe is inaccurate.
Harness the Power of Your Credit Report
When you understand your credit report, you’ve armed yourself with critical information about your financial health. From there, you’re ready to take action to improve your credit, if necessary. And you can empower yourself to reach your financial goals faster.
Looking to improve your credit score? Explore our credit builder loans.
The information in this post is for educational and informational purposes only and does not constitute investment or financial advice. You should consult a licensed financial advisor before investing in any financial product or service.